Planning to invest in MFs? Know what are the components of expense ratio

With the markets still being far from their peak, do you think one should make a lump sum investment in mutual funds?

To begin with, investments should not be timed based on market movements. Markets are volatile and it is difficult to gauge the market peak or bottom. Your investments should be aligned to your goals. It is advisable to make regular investments through the Systematic Investment Plan (SIP) route. Further, you can provide a boost to your regular investments by making lump sum investments when you have excess cash. Lump sum investments during a market correction can be advantageous in the long run, as they will benefit from the long-term growth potential of equity markets.

What are the components of expense ratio? Why is there so much difference in the expense ratios of funds in the same category, and even among equity funds from the same fund house?

The various components of expense ratio include fund management fee, marketing and distribution fee, transfer and registrar, legal, operations, audit and custodian fees. According to the Securities and Exchange Board of India’s (Sebi) mandate, total expense ratio can vary based on the asset class and the asset under management (AUM) of the fund. Different slabs have been defined for different levels of AUM. Higher the AUM of the fund, lower is its expense ratio.

I have downloaded an investment app. I did know your customer (KYC) through the app. Will this KYC be valid for app-based investments only, or will I be able to transact across all fund houses? Is there any investment limit for KYC done through the app/online? What is CKYC, and how can I be compliant with it?

KYC done through official mutual fund apps and registered KRA agents is applicable across mutual funds. Video-based or image-based KYC done through apps have no investment limit. CKYC is Central KYC that maintains a repository of all customer records across different financial services. In order to be compliant with CKYC, you can visit any of the financial institutions regulated by Sebi, the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority of India (IRDAI) or Pension Fund Regulatory and Development Authority (PFRDA).

Can my wife and I invest in a mutual fund jointly? Do joint mutual fund accounts work like bank accounts where I can choose from options like either or survivor, anyone or survivor, and latter or survivor to operate the account?

Mutual fund investments can be held jointly. In the case of joint holdings, the first-named holder is the primary holder. You can specify the ‘mode of holding’ in the application form as either jointly, or on either/anyone or survivor basis, or on first holder or survivor basis.

In the case of redemption requests where the holding is specified as ‘joint’, redemptions would have to be signed by all the joint holders in the same order as registered with the mutual fund. However, in the case of holdings specified as ‘either/anyone or survivor’, any one of the unit holders will have the power to make redemption requests, without it being necessary for all the unit holders to sign. However, in all cases, the proceeds of the redemption will be paid only to the first-named holder.

The writer is MD & CEO, SBI Mutual Fund. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in