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Before making any sort of investment, we never think of the cost & charges incurred in it. It is noticed that any investment linked with cost and taxes, registers a reduction in return on investment. Investor who is focused on investing should pay prior attention to the costs attached, in that way he can save money and that can add to his total returns.
Smart investors always study the costs involved before investing in order to amplify their profits. Few years back, financial advisors tried to attract the investors towards the Unit Linked Insurance Plans (ULIP'S) by showing the advantage of life cover along with market- based returns. However, this product turned into disappointment when investors denied paying the front-end load amount.
The same happened when Mutual Fund house's New Fund Offering (NFO) came into the market. It got huge success at the start. Initially, investors took them very fast because they were cheaper, but when they came to know that they have to shed 4 to 5 % through entry load, and they become unhappy with it as well. Therefore, investors should always check the costs incurred in the form of taxes, entry fees as well.
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We need to think over the different types of expenses incurred in various investment schemes and also how to minimize all such expenses. Here are few types of expenses which everyone has to incur:
Brokerage: Investors have to pay a certain amount of brokerage whenever they purchase or sells shares, which are based on the amount of money transactions. It ranges within 0.2 percent to 0.5 percent of the amount. This Brokerage is a major expense during the transactions of shares. In this case, investors should always search for a brokerage house that charges fewer amounts of brokerage and on the other hand, provides quality service to its customers. Nowadays, there are several online trading portals available, which provide good uninterrupted service and charge lesser amount. Investor can think over such type of portals.
Depository Participatant Charges (DP charges): The person who does the transaction of shares needs to open Demat account with a depository participant. The depository Participants charge yearly maintenance fees in the form of Annual Maintenance Charge (AMC), which ranges from Rs 200 to Rs 700 excluding service tax. Even DP charges a fee on every transaction, which varies anywhere between Rs 10 and Rs 35. Consequently, investor should not only focus on the fees but also consider the transaction facilities as DP possess authority to sell off your shares in case of any sort of fault during transaction, which results in the form of monetary loss.
Bank Charges: Banks provides various services and for most of the services, they charge particular amount, such as for Signature verification, issue of cheque book, cancellation of cheque, charges related to the debit card, etc. These charges vary from the bank to bank. Use of online service and less use of cheque book are some of the ways to minimize these charges.
Mutual Fund Entry & Exit charges: Always take a note of fund charges and load before investing in any sort of Mutual Fund because these type of charges affect your returns, especially the short- term returns. Fund charges vary from 2 % to 2.5 % of the investment value. These fund charges and load are according to the SEBI rules & regulations. These entry & exit charges are discussed in the offer documents as well. So, better take a look over the document carefully.
Unit Linked Insurance Plan (ULIP): It is required to know the Front-End load before purchasing any type of ULIP. Insurance companies not only charge entry fees but also charge recurring expenditure for the plan. These charges bring a big difference to your plan. Almost 2% to 3% of the investment amount is charged as fees by the insurance company. This fees is as per the IRDA norms.
Insurance: Always purchase Term Insurance online, because the premium is less in it. Most of the insurance companies provide this service.
Pay your Loan first: Always try to pay off your loan amount if you have options available for it. If you have investments with lesser returns, then it is advisable to pay off your loan, which charges a bigger interest every year.
Credit Card: You can use the credit card which doesn’t take surcharge on use. In this way, you can enjoy the loan period without interest. Try to pay the amount to the credit card company on time, otherwise they will charge interest as well.
So, the crux of the matter is that you should look forward to the taxes and fees attached to any of the investment plans because one way or other; it will affect your returns.
Source: InvestmentYogi is one of the leading personal finance websites in India
