DEFINING AND MEASURING THE EFFECT OF SERVICE

QUALITY IN SELECTION OF A MUTUAL FUND IN

INDIAN CONTEXT

Rajesh Kothari Narendra Sharma

Mutual funds are those kinds of services which have heterogeneity at maximum level.
For example Reliance mutual fund has almost same tax planning features as Birla sun
life mutual fund. So perceiving service quality becomes more tiresome task for customer
in this industry. In present paper we have explored Parasuraman' 5 dimensions of
service quality for mutual funds in India. By doing some statistical analysis we identified
that high familiarity of corporate brand in mutual fund industry in India is more
influential than any other factor. So advertising for increasing this awareness can help
in better recall and then in adding value towards perceived service quality for mutual
funds in India.

INTRODUCTION

F
amiliarity with the brand is very important to the success of any
marketing mix in services due to intangibility characteristic of
the services. In services, the emphasis should be on a consistent
promotion of the “corporate brand”. The less tangible the service is the
greater the importance of this “corporate brand” emphasis. A familiar
and trustworthy name seems therefore essential to success in the markets
of services. The success of mutual funds companies in India depends
not on their financial services experience by customers or the inherent
superiority of their product offerings, but on the fact that their names
are trusted by the small and medium class consumer and are associated
with established image. In India, the majority mutual fund product
market is dominated by organizations with surprisingly similar names
such as ICICI Prudential asset management company (backed by ICICI
bank), SBI mutual funds (backed by State Bank of India) etc.
Mutual funds companies need to consider branding issues
especially where there is little else to discriminate among different
mutual fund schemes. At the point of purchase the consumer cannot
perhaps decide which company’s mutual fund is the best for his
investment. Past performance, trust in the fund manager, amount and
structure of fees and even what free offerings are available all impact
Journal of Services Research, Volume 9, Number 2 (October 2009 - March 2010)
©2009 by Institute for International Management and Technology. All Rights Reserved.
174 Defining and Measuring the Effect

on the purchase decision. However, one of the most important factor

will always dominate other factors for purchase decision i.e. recall of
frequent advertising of mutual fund.
Most practitioners agree that high quality products and services
are fundamental to a successful competitive strategy. The characteristics
of product quality are not readily and easily transferable to quality in
services. Earlier studies show that factors representing quality will differ
for products and service.
Although several studies have examined the significant dimensions
of service quality, they have focused principally on the concept and
measurement of service quality (Parasuraman et al., 1988). While such
inquiry is important, it has focused largely on the methodology of
service quality opus rather than the impact service quality poses for
following consumer action. An another dimension – name familiarity
– offers important marketing distinctions and considerations. Finally,
the third dimension that has received attention has been price and the
role it plays in the decision to use one service versus another.
Gummesson (1991) argued that both “technical quality” and
“functional quality” should be considered when assessing the quality
of a service. Technical quality referred to the satisfaction one felt toward
the outcome of service provision, whereas functional quality referred
to one’s feelings toward the process or experience of receiving the
service. Thus, for a high quality service assessment to occur, a user
would judge the process of delivery as being a pleasant experience
(functional quality) and the outcome or result of the service to be highly
satisfying (technical quality).
The literature on service quality also distinguishes between actual
and perceived service quality. The actual quality is synonymous with
objective quality, and is specified as number of defects, errors or
failures in a specified sample size; conformance to customer
specifications. The perceived service quality refers to consumer
judgment or evaluation of the quality. Ozment and Morash (1994)
develop a model integrating two elements of augmented service (core
service and peripheral services) with the two elements of service
quality (perceived and actual). Their research is important in that it
exhibits the role of “cues” or “service visibility” aspects of service
on perceived service quality.

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 175 Kothari, Sharma

PERCEPTIONS IN SERVICE QUALITY

Individual perceptions about service quality can be of two kinds:
1) Perceptions before service contact
2) Perceptions after service contact
In “before service contact”, ‘perceived service quality’ is mix of prior
expectation during service contact and service delivered during the
service encounter (Boulding et al, 1993). Service encounters can be
quoted as moment of truth or critical incidences and it is interaction
between service provider and customers through face to face, telephone,
mail, fax etc. Here, in case of service delivered during the service
encounter, case it is experience of other users or customers which has
been referred by customer in search of service. Customers are becoming
critical of the quality of the service they experience nowadays (Albrecht,
and Zemke, 1985). Perceptions after service contacts will make
expectations more realistic and practical in cases of services. If
expectations are then met out, he will be satisfied customer. In positive
case, he will be delighted and in negative case dissatisfied.
DEFINING PERCEIVED SERVICE QUALITY IN MUTUAL
FUNDS
In case of mutual fund sales, service quality perception ‘before service
contact’ about specific mutual fund company is very crucial keeping
in view traditional investment behavior of small and medium class of
investor in India as they are more conventional friendly by investing
through post office and well known insurance agent (sometime opted
by/due to inheritance by father or forefathers).He wants to see evidences
of convenience before breaking traditional-convenience barriers of
investments. What mutual fund companies can do and do also in some
company’s cases for the same is exploring these existing channels of
convenience where they embrace their plans on front foot for enabling
exuberant experience to target customers.
Mutual fund companies are floating their schemes now to tier-II
cities and identifying ground-breaking channels of distribution to reach
for improving and enhancing perceptions before service contacts which
will result into improvement in perceptions after service contacts also
later on as an impact. These companies are collaborating with post

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176 Defining and Measuring the Effect

offices, old insurance agents, chemists, spouse of teachers, old groceries

store etc for winning over customers of traditional investment products.
“What India is facing is a psychological crisis and it’s high time we
clear the myth and the only way to do it is by forming an association to
regulate the market. And for this, we need professionals who can do
advice based sales rather than sales based advice. For this, training is a
major requirement in the segment. We need to emphasis on building
advisory relation with investors and meet the challenge of technology
which can to a large extent change the mindsets of the people.”1
Here it is also very imperative to define service quality definitions
for mutual fund companies and mutual fund as a service to target
customers. In literature available to us different authors have given
different definitions of service quality like meeting out customer
expectation or providing better than expected services or avoiding
service failure or quick service recovery etc. One definition which tries
to unfold all intended positive meaning to can be “How customers
compare between expectations of services with their perceptions of
actual services performed” (Gronroos, 1982; Berry et al., 1985; 1988).
Even in this tough time of economic slowdown, most of asset
management companies in mutual funds do not have problems in
distribution but in service delivery. But service delivery in this industry
also can not be efficient enough unless perceived service quality is
met out with expected one by customer targeted.
REVISITING SERVICE QUALITY FOR MUTUAL FUND
INDUSTRY THROUGH PREVIOUS RESEARCHES
Measuring service quality is very challenging task for any service
industry and it becomes tougher for mutual fund industry .Five
dimensions of service quality as defined by Parasuraman are as follows:
(Parasuraman et al., 1988):
1) Tangibles — physical facilities, equipment, appearance of contact
personnel.
2) Reliability — ability to perform the promised service dependably
and accurately.
3) Responsiveness — willingness to help customers and to provide a
prompt service.

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 177 Kothari, Sharma

4) Assurance — knowledge and courtesy of employees and their

ability to inspire trust and confidence.
5) Empathy — caring, individualized attention the company provides
to its customers.
For mutual fund industry in Indian context, one question may arise
that whether all these dimensions are equally important. One should
be careful in inferring that quality is unimportant to mutual fund buyers.
Service quality has been shown to be a multi-dimensional construct as
per above mentioned Parasuraman model. We may find important
cues from research (Chowdhary and Prakash, 2007).
Following relevant conclusions we have analyzed from this research
for mutual fund industry:
1) Need for reliability is more important for services with intangible
nature of service act. Mutual funds come under this category.
Our analysis for mutual fund industry in India: So it is very much a
compulsion for mutual fund companies to perform promised services
accurately. What generally mutual fund companies in India promise to
customers are accessibility through intermediaries, transparency in
dealing and disclosing the facts about risk and reward. So for
understanding perception of target customer It is advisable for mutual
fund companies to work consistently over “Reliability” dimension so
that customer can weigh mutual fund of concerned company over other
mutual fund companies and traditional investment plans. This argument
is more applicable for small and medium class of investors.
2) Services targeted at customer require more assurance than those
targeted at their possessions. Mutual funds come under this category.
Our analysis for mutual fund industry in India: Mutual funds are
highly intellectual products in nature and it requires adequate knowledge
before dealing with target customers. It is well taken by SEBI2 in India
as each and every individual who wants to deal in mutual fund in any
capacity either as employee or agent of any mutual fund company/
corporate broker/sub broker, is supposed to qualify AMFI exam3 before
dealing with customer. AMFI certificate is kind of license to deal
with target market. This sense of validation in itself can instill
confidence and trust among investors in India. But very few investors

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178 Defining and Measuring the Effect

are aware about this fact in India. Mutual fund companies can take
initiative in this regard and start writing note at end of each
advertisement about this fact if government remains relatively less
active on this front.
3) Information and people processing services require more empathy
as compared to others. Mutual funds come under this category.
Our analysis for mutual fund industry in India: “A rise in beneficial
investment planning would ensure long term sustainability of
economic growth and will also create incremental economic
opportunities.”4 In mutual fund industry we hear the terms like Portfolio
management, wealth management, etc. Purpose behind these services
in this industry is to serve better by providing customized services to
target investors. Each investor has different objective for investment
and timeframe for requisite return is also different in with each
investor’s case. If individual, for mutual fund investments is not
offered appropriate scheme meeting his/her investment goals, he will
be dissatisfied customer and can behave as below:

Public action:
- Redressing the mutual fund
company.
Action - Legal action against company.
- Complaint to appropriate agencies.

Dissatisfaction

No action Self action:

- Stop buying the mutual fund
schemes from company.
- Negative word of mouth.

Figure 1: Customer behavior after dissatisfying with Mutual Fund

Company
4) Prices were considered relatively more important by consumers
for possession and mental-stimuli related processing services.
Mutual funds does not come under this category.
Our analysis for mutual fund industry in India: Mutual fund schemes
of different asset management companies in India charge only three

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 179 Kothari, Sharma

common prices for selling mutual funds (see appendix A for detail):
1) Entry load
2) Exit load
3) Annual fees.
Unlike other services (for example current account charges for non
maintenance of minimum account balance, where these charges can
make big cost to account holding firm or charges of internet surfing at
various cyber cafes) , fees or charges in comparison of return sought
from various schemes are negligible. So “Prices” are immaterial for
mutual funds in India.
MEASURING PERCEIVED SERVICE QUALITY IN MUTUAL
FUNDS IN INDIA
The impact of familiarity on advertising strategy is another important
aspect to consider in marketing strategy. Kent and Allen (1994)
demonstrated the importance of brand familiarity in combating
competitors’ advertising. Here, familiar brand names were expected to
have a competitive advantage over relatively less familiar brands because
of greater recall of information about familiar brands. The research on
the role of familiarity in services marketing is inadequate and roundabout
at best and specifically in mutual fund industry it is more or less none.
Retzloff (1989) found that in the area of insurance (services), company
image was an important determinant of success, with respondents rating
the importance of image ahead of price.
It is imaginable that, in mutual fund marketing, we may anticipate
the name of the company to carry certain benefits similar to those
conveyed through the brand name. Accordingly, name recognition
may convey perceptions of quality and affect service choice decisions.
Certainly, this measurement requires specific research attention.
A final variable that deserves attention in mutual fund marketing
strategy is the price of services. It is usually accepted that consumers
use price as indicators of both product cost and product quality.
However, one must question whether the same generalization can be
made in services especially in mutual funds. The limited evidence is
not clear (Steenkamp, 1989). Further questions arise related to the
presence of interaction between the price and service quality of mutual
fund.

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180 Defining and Measuring the Effect

Important considerations such as whether consumers are willing to

pay more for higher quality services must also be considered. When
generalizing the price-quality findings from the product to the service
sector to mutual fund industry in general, the research relating the price-
quality linkage is not conclusive. On one hand, the literature provides
some limited evidence of the price-quality relationship for the service
arena and zero for mutual fund industry. For example, Milliman et al.
(1991), in a field experiment of the price-quality relationship in legal
services, noted that when price information was included in
advertisements, the perceived value of legal services increased.
This article investigates the impact of three factors – the perceived
quality of services, name familiarity, and price – on buyers’ mutual
fund selection decision.
METHOD
Our study examines mutual fund investment services for “small and
medium class investors”. The impact of service quality, name familiarity,
and price were examined. The experimental design followed a 2 ´ 2 ´ 2
between-subjects factorial design. The factors included service quality
(high or low), name familiarity (familiar or unfamiliar), and price
(regular or low). The subjects for the study were “small and medium
class mutual fund investors” taken from data base of randomly chosen
brokers R. R. Investors, Birla Sun Life Distribution, Bonanza, Allianze
Securities and Bajaj Capital Ltd in Jaipur who sell mutual funds schemes
of all asset management companies in India. The number of male and
female respondents was approximately equal (138 and 135
respectively).The respondent were new and old investors in their
investment behavior (but only those respondent were selected who
started investing in mutual funds 1991 and thereafter).
Keller (1991) and Kent and Allen (1994) used same methodology
for administering the questionnaire and the advertising stimuli. Subjects
were provided with two booklets. One booklet contained the directions
and the advertising stimuli, while a second booklet enclosed the
questionnaire. Subjects were instructed to look at the advertisements
as they would for any advertisement in a publication. The former
booklets differed in levels of brand familiarity, price and quality. All
advertisements (those with the treatment and the fillers) were created

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 181 Kothari, Sharma

with a common arrangement and layout with the headline featuring

the name of the mutual fund company and the body containing four or
five characteristic claims. Arguments represented those aspects of the
services that respondents were likely to put to use. Arguments selected
as low service quality were those deemed to be less relevant to
respondents or those that respondents were less likely to be in need of
and less likely to use.
In order to assess the influence of name familiarity, two names
were selected for each service category. One name was chosen to
convey name familiarity, and a second was selected as a new name to
represent name unfamiliarity. The names were SBI mutual funds and
Franklin Templeton mutual funds. A pre-test of a separate group of
students indicated that virtually all respondents were familiar with the
SBI mutual funds name and unfamiliar with the Franklin Templeton
mutual funds.
A variety of statements indicating price salience was tested. One
idea was the low price statements were: “entry load discounts available
for lock in period” and “Nobody beats our charges/fees”. The regular
price statements were: “Same rates regardless of ingestible amount”
and “Options for monthly payment (SIP available)”.
The questionnaire booklet included the questions used as dependent
measures, as well as manipulation check questions. Initially, as an
unaided recall of the company’s name, respondents were asked to write
down the name of the mutual fund company they saw in the
advertisement. Additionally, respondents were asked to write down
the various features they saw for each of the advertisements. Respondent
attitude toward using the respective companies was assessed through
an eight-point, multi-item semantic differential scale.
In a similar format, the respondents’ attitude toward each
advertisement was measured through a three-item semantic differential
scale. The end points for the scale were “Very appealing – Very
unappealing”, “Tasteful – Poor taste”, and “Interesting – Uninteresting”.
The dependent measure concerning the respondents’ intention to use a
given service was assessed through a two item semantic differential
scale. The end points for the scale were “Very likely – Very unlikely”
and “Definitely not – Definitely yes” (reversed scoring). Further,

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182 Defining and Measuring the Effect

respondents were asked their perceptions of service quality and price.

The end points for the service quality statement were “Low quality –
High quality”. The end points for price were “Price is low – Price is
high”.
RESULTS
The mean values for the service quality manipulation were 4.75 and
4.08 for the high and low service quality conditions respectively. These
values have borderline significance ( p < 0.014) for a one-tail test) and
are in the hypothesized direction. The familiarity manipulation is often
tested by direct measure by asking respondents to indicate familiarity
(familiar to unfamiliar on an itemized scale) with the brand (Kent and
Allen, 1994; Loken and Ward, 1990; Machleit and Wilson, 1988). Using
this method, respondents express lower familiarity with hypothetical
brands. Our pre-test supported the above assertion. In addition we also
used an unaided recall of name familiarity. Respondents were asked to
write down the name of the service provider. It was expected that
respondent recall would also be considerably higher for familiar names
than for unfamiliar names. The correct recall for familiar conditions
was 83 percent whereas the correct name recalls for unfamiliar
conditions was 40 percent. Thus, the study’s manipulation for
familiarity was successful.
Respondents were asked to rate their price perceptions on an eight-
point scale with end points as “prices are low” and “prices are high”.
The t-test for the difference in mean perceptions for these services
revealed no statistical difference ( p = 0.44). Since the manipulation of
price was not successful, the influence of price as a main effect or
interaction effect was not explored.
Initially, respondents were queried regarding their attitude toward
purchasing mutual funds from the familiar company (SBI Mutual
funds) and the unfamiliar company (Franklin Templeton mutual funds).
The mean attitude score for high familiarity was 5.28 and for low
familiarity was 4.21. The difference in these two attitude scores was
significant at p = 0.00 level, indicating a more favorable or positive
attitude toward the familiar name. Similarly respondents were queried
about their intention to switch from their current company to the

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 183 Kothari, Sharma

companies portrayed in the advertisements. The intention to switch

was also influenced by the name familiarity. The mean intention score
for low familiarity condition was 2.07 and for the high familiarity
condition was 3.59. These scores were also statistically significant
(p = 0.00).
Additionally the results indicate that perceived service quality also
had a significant effect on their attitude toward obtaining mutual funds
from the two companies. As expected, the mean score for higher service
quality condition was 5.06 which was significantly ( p = 0.01) greater
than the mean attitude score for the low service quality condition. The
influence of perceived service quality and familiarity on intention to
switch to this mutual fund company was not significant.
Finally, the results revealed that the respondents’ attitudes toward
the advertisement were not influenced by service quality or name
familiarity.
The interaction effect was also not significant. These findings are
shown in Table 1.
Table 1: Mean Values for Attitude and Intention to Obtain

Attitude toward the Attitude toward the act Intention to switch to

Advertisement of obtaining mutual this mutual fund
Familiarity fund Familiarity company Familiarity
Low High Low High Low High
Low service 3.85 3.97 3.88 5.97 1.85 3.75
High service 3.67 4.21 4.54 4.59 2.29 3.43
Quality
Overall mean 3.76 4.09 4.21 5.28 2.07 3.59

CONCLUSIONS
This study focused on the influence of service quality and name
familiarity on attitudes toward advertisements for selected mutual fund
services, attitudes toward using or obtaining these mutual fund services,
and the intention to use these services.
Certain results seem particularly meaningful. First, attitude toward

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184 Defining and Measuring the Effect

the advertisement as reflected by the level of appeal of the advertisement,

the perceived taste of the advertisement, and the level of interest in the
advertisement were not significantly affected by either name familiarity
or perceived service quality.
This result may be expected for the variable of service quality.
Both high and low quality advertising arguments represented areas or
topics frequently associated with mutual fund choice decisions. Thus,
while the level of service quality varied, nothing unique or striking
was present in either manipulation to affect markedly one’s awareness
of or reaction to a given advertisement.
In contrast, the finding that attitude toward the ad was not
significantly affected by name familiarity was less obvious. One might
expect that a highly recognizable name (such as SBI mutual funds)
would convey higher levels of feelings toward the advertisement than
a less recognizable name. As noted earlier, such an outcome appeared
consistent with the work Retzloff (1989) related to company image.
These results support the importance of familiarity and service
quality in developing favorable attitude toward the mutual funds.
Importantly, favorable attitudes can be developed and reinforced
through the advertising message.
Accordingly, the significance of conveying quality dimensions and
building on name familiarity are established to be important advertising
considerations.
Finally, respondents indicated that they were more likely to use the
high name familiarity mutual fund company than they were to use the
low name familiarity company. Again, this finding signifies the
importance of name familiarity and demonstrates its impact on
behavioral intention.
One of the key managerial implications of this study resides in
demonstrating the importance of name familiarity in affecting one’s
decision to obtain mutual fund services. Undeniably, the results suggest
that name familiarity may be a more significant decision variable than
perceived quality. For example, when considering the low service
quality group, familiar names were more likely to lead to buy intentions
than were less familiar names. A similar finding was present for the
high service quality group as well. Although companies with higher

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 185 Kothari, Sharma

perceived quality were preferred over those with lower quality, the
effect of service quality was less than substantial and, in some cases,
nonsignificant. These findings signal a unique set of managerial
challenges for lesser known companies, particularly as they attempt to
compete against the terrifying presence of high name familiarity rivals.
It appears that advertising copy limited to greater service quality alone
may not be enough to convince individuals to develop a favorable
attitude or to purchase the specific mutual fund. These efforts may be
relatively ineffective in switching individuals from a highly familiar to
an unfamiliar mutual fund company.
This research also has significant implications in formulating an
advertising strategy for services. Machleit et al. (1993) show that
advertising for familiar brands does not work the same way as
advertising for unfamiliar brands. Specifically, advertising for familiar
brands was less susceptible to competitive interference. One
explanation for this is that attribute information for familiar brands is
linked in a consumer’s memory with that specific brand, whereas
attribute information for unfamiliar brands is linked with general
product category. Therefore, individuals are more likely to retrieve
specific attribute information from retrieval cues for familiar brands
than for unfamiliar brands. Another explanation is based on the
concept of consumers’ selective exposure to vast numbers of
competing advertisements. Individuals are less aggravated to
concentrate to information about unfamiliar brands than they are about
familiar brands.
Our results support the findings of Kent and Allen (1994), showing
the significant and large main effect of familiarity. This indicates that
well known products and services have important advantages to their
advertising. Apart from differences in ad executions, choice of media,
or number of exposures, consumers tend to have a better memory for
information about familiar brands.
These results may also help to explain the excessively higher share
of voice that accrues to familiar brands. The corollary to these findings
is that consumers will find it difficult to remember information about
new brands. This difficulty may add to some of the other problems in
introducing new mutual fund schemes.
This finding suggests that a company may be better off establishing

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186 Defining and Measuring the Effect

name recognition through advertising, rather than advertising higher

service quality. It is possible that advertising efforts promoting higher
quality are constrained by limits of familiarity. Such companies would
be well advised to spend a portion of their budget on image-building
advertising, particularly one which achieves higher recognition scores.
This approach, however, requires a considerable budget. Furthermore,
since the emphasis of new business should be on establishing name
recognition, they should use creative and captivating advertising. One
approach to enhance familiarity is through advertising strategy. The
advertising approach known to enhance retention and familiarity is
one based on using jingles, thematic comparisons or repeated assertions.
These repeated assertions may involve repeating an idea either in words,
graphics or sounds. Another approach is to involve the consumers.
This can be done by headlines or copy appeals designed to increase
curiosity, or exploration.
Finally, two cautions related to this study need to be noted. Although
the experimental setting was matched to fit with the use of selected
respondent’s subjects by selecting the mutual fund services and the
attributes that are relevant to respondents, care must be taken in
generalizing these findings to overall population. Second, because of
the heterogeneity of services, caution is advised in generalizing these
findings beyond mutual fund services.
END NOTES
1. Mr Rajiv Bajaj, Vice Chairman & Managing Director, Bajaj Capital
Ltd in a panel discussion on Distribution – Challenges under the
current market conditions, New Delhi, 08 Dec 2008 organized by
Dun & Bradstreet and with Deutsche Bank.
2. SEBI stands for Securities and Exchange board of India. It was
established on April 12, 1992 in accordance with the provisions of
the Securities and Exchange Board of India Act, 1992 and its
objective is “…..to protect the interests of investors in securities
and to promote the development of, and to regulate the securities
market and for matters connected therewith or incidental thereto”.
3. AMFI exam is conducted by Association of mutual funds in India
(AMFI) and objective in conducting the exam is to o develop a
cadre of well trained Agent distributors and to implement a

Journal of Services Research, Volume 9, Number 2 (October 2009 - March 2010)

 187 Kothari, Sharma

programme of training and certification for all intermediaries and

other engaged in the industry.
4. Dr. Manoj Vaish, President and CEO, India, Dun & Bradstreet, in
a panel discussion on Distribution – Challenges under the current
market conditions, New Delhi, 08 Dec 2008 organized by Dun &
Bradstreet and with Deutsche Bank.
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Steenkamp, J.-B.E.M. (1989) Product Quality, Van Gorcum, Assen/Maastricht, The
Netherlands.
Dr. Rajesh Kothari, Director, Faculty of Management studies,
Rajasthan University.
Narendra Sharma, Professor, Faculty Member, INC ASIM Jaipur,
Rajasthan.

Journal of Services Research, Volume 9, Number 2 (October 2009 - March 2010)

 189 Kothari, Sharma

APPENDIX A
The asset management company (AMC) that manages mutual fund
has to spend on people, technology and infrastructure to generate returns.
So it gets part of these regular expenses from the investor. It is divided
into two parts: annual management fee (up to 1.25 per cent for funds
less than Rs 1 billion and one per cent for funds above Rs 1 billion)
and entry & exit loads. Loads normally apply to only open-ended
schemes. An entry load is also called the sales load, which is mainly to
help the AMC recover expenses relating to sales literature, distribution,
advertising and agent/broker commissions. On the other hand, exit
load (if you withdraw within a specified period) is charged while
redeeming the units of mutual fund.
ENTRY LOAD

Entry load is the charge collected by a scheme when it sells the unit to
investors. The entry load percentage is added to the prevailing NAV at
the time of allotment of units. The entry load is also known as ‘Front
End Load’. Schemes that do not charge a load are called ‘No Load’
schemes. This amount goes to the Asset Management Company (AMC)
and not into the pool of funds of the scheme.
EXIT LOAD
Exit load is the charge collected by a scheme when it buys units from
the unit holders. The exit load percentage is deducted from the NAV at
the time of redemption (or transfer between schemes). The exit load is
also known as ‘Back End’ Load. Schemes that do not charge a load are
called ‘No Load’ schemes. This amount goes to the Asset Management
Company (AMC) and not in to the pool of funds of the schemes.
ANNUAL FEES
Expenses which are incurred by asset management company for its
well being like sales promotion, advertising etc annually are called
annual management fees. In America they are popular with name of
12b-1 fees.

Journal of Services Research, Volume 9, Number 2 (October 2009 - March 2010)

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