Mutual funds—how much does it cost?
To know how much a mutual fund scheme charges from you, you have to understand the expenses ratio. It represents the annual fund operating expenses of a scheme such as administration, management, advertising related expenses and so on. Typically, the expense ratio remains between 1% to 2.25% of AUM in case of equity-oriented schemes and less than 1% in case of debt schemes. An expense ratio of 1% per annum means that each year 1% of the fund’s total assets will be used to cover expenses. Information on expense ratio that may be applicable to a scheme is mentioned in the offer document and are easily available on the internet at various places.
The Growth and the Dividend options of mutual funds
So, if you are investing keeping in mind a long-term goal, ideally you should choose a growth option, where your gains remain invested and keep growing. In case you feel happy with something coming to you periodically from your mutual fund investments, you can choose a dividend option. However, please note that the dividends are neither promised in value nor in frequency, and hence can never substitute for any regular income. In fact, every time a dividend is paid, the value of your fund goes down because it is taken out from the fund value itself.
Typically, every investor should choose the growth option to invest. In case regular income is required, Systematic Withdrawal Plan (SWP) is a much better and predictable way rather than Dividend option.
Income tax department charges tax and penalty if you delay filing your ITR
ITR also comes handy when you apply for certain types of loans like home loans, personal loans and so on. In some cases, you may need to provide ITR while applying for the visa of certain countries.