In order to be a successful investor, it is important to know that how much your investments cost
. If you are unaware of the various costs that you charged, then it might lead you to end up paying more costs. Some investments have hidden costs and others, you might not pay attention while investing in any security. So it’s very important that you know the costs that are charged to you and to whom it goes.
“The more people between you and your money, the harder it becomes to invest in success.”
- Brokerage: It is the cost that you pay to your broker as his commission. You pay the brokerage for the transactions that you make from your demat account
- Securities Transaction Tax (STT): Securities transaction tax is payable in India on gains from securities traded in, except commodities and currency. STT is a direct tax that is collected by the Central Government of India. The rate of taxation is different for equity, futures, and options.
- Front-end load charges: A front-end load is a commission or sales charge applied at the time of the initial purchase for an investment, usually with mutual funds and insurance policy purchases. It is deducted from the investment amount and, as a result, lowers the size of the investment.
- Surrender charges: Surrender Fee is a charge levied against an investor for the early withdrawal of funds from an insurance or annuity contract, or for the cancellation of the agreement. Surrender fees are essentially back-end loads that discourage investors from canceling what are often long-term contracts. This limits the investor’s flexibility to move money out if the annuity isn’t performing well.
- Investment management fees: investment management fees are deducted from the value of the investment to cover the costs of research and selecting securities for the fund.
- Administration charges: These are the charges that you are required for the administration of your investment. It includes maintaining a record of your investment and calculating the value of the fund each day.
- Fee for advice: if you are taking help from a financial advisor for making investments then the advisor charges a fee for his advice. This amount of fee is decided between you and the advisor.
One should remember that it can be worth paying higher fees if you get a better service or performance. But you should remember that past performance is not a reliable indicator of future performance. And higher returns are normally available only with higher risk investments, where the risk of losing your money is also greater.