Mutual Fund Direct Plans-Who can move?

From January this year mutual fund investors now have an option to invest directly without going through advisers. Going so you can directly save around 50-100 bps of cost. I don’t know about investors mind but their is huge discussion going on among advisers and planners (who are concentrating only on fees) to defend which is good. Let us think practically about it’s suitability.

I am not writing this post either being an adviser of mutual fund or being certified financial planner, bug going through the ground realities of Indian investors mentality. Do you know the penetration of mutual funds in India? According to study conducted by Price Waterhouse Cooper and Confederation of Indian Industry (CII) in 2012, it is 2% to 3% of Indian household savings. This after the entry of mutual fund industry into India nearly two decades back. Interesting too see in this report is that, 65% of mutual fund AUM is concentrated in four metros. So rest of India contributes 35% of AUM. Do we think this as right kind of market for investing directly?

I am giving you few examples of how much educated are our customers when it comes to dealing with finance. From my experience around 50% of educated (I mean to say the educated who are in IT and IT related industry and holding good position with handsome salary too) don’t know basic things about banking like where to sign on cheque leaf, what do you mean by “Account Payee Only” or how to drop the cheque in bank. Can we call them educated??

Now when we come to investment, majority of these educated are mess up with insurance products as investment, bank FDs or PPF (if that guy is bit knowledgeable about finance). In such case pushing for direct plan of such investors will actually a hazard than the boon.

Eventhough I believe it is premature to come to judgement about the NAV difference between direct and regular plans, but I agree 100% that in long run it will really make a huge difference even we have difference of around 50-100 bps. But the point is, Are our Indian investors educated enough to take this advantage of going with direct plans?

When one go with direct plan, investors have to do all follow ups them self only. Will they capable of handling their investment on their own? I know only few understand the in depth concepts of selecting mutual funds and how to be winner. But what about the rest?

Hence instead of providing such opportunities regulators must first create the conducive atmosphere of investors who are knowledgeable and capable of doing it their own. So need of the hour is financial literacy than such plans. In my view such options are good opportunity for the countries where mutual fund penetration is more.

Saying so much about negative advice about going with direct plans is not my intention. So who can go with such direct plans?

  • Who are capable of choosing plans on their own (First and foremost complex issue where investors find it difficult).
  • Who are capable of processing documentation required on their own.
  • Who track mutual fund industry updates and regulatory changes on regular base.
  • Who can handle the service related issues like change of address, change of bank mandate, consolidation of folios, transmission of funds, inclusion of nominee, arranging for periodical statement of accounts, correction of mistakes in the account, change in KYC, change in contact information, etc.
  • Investment in mutual funds is not like dealing with any one company. Based on your goals and fund you choose you have to select on different companies. So investors who can handle to deal with all mutual funds they invested can move to direct plans.
  • Who can understand tax complications of their mutual fund investments.
  • Last but not least who are active learners 🙂

So investors now have two options left out. First one is, continue with regular plans with the adviser whom you feel giving you a value addition to your investment in selecting funds, monitoring them, record keeping and giving you good service. Second option is, go with direct plans if you are expert else choose fee-only planners. Think yourself what type of investors are you and decide which option will be suitable for you.

55 Comments

  1. Hi Basu can you explain by example, let us say one logged into SBI mutual fund website and he is KYC complince so he can now invest in SBI mutual funds, inside the website you will find two funds with same name like SBI X fund Growth regular plan & SBI X fund Growth direct plan

    So my confuison here what is the difference between two as there is no mediator and I am investing directly from SBI website so what action we suppose to do in Direct and regular I mean what is difference at the end we are investing SIP of x amount per m onth in SBI X fund

    Please advise, Thansk a lot !

    Reply
    • Shahnawaz-There is a difference in the expense ratio of both regular and direct. Hence, in case of regular funds and you are buying directly from mutual fund company portal, then they eat that commission part. However, the same is not possible with direct funds.

      Reply
      • I got your point but still one doubt as an end user what suppose I have to do , after reading all this I must go with Direct fund and fill from their website easily and save this commission, I hope you agree with me

        Reply
  2. I want to do 40K SIP per month. I want to invest for long term for 15 years. My age is now 35. Please suggest me good funds to invest.

    Reply
  3. Sir,

    First of all thank you for your valuable advises. My age is 28 years and my current investments is as follows –

    Birla Sun Life Frontline Equity Fund -Growth- 3000 monthly
    PPF – 10,000 monthly

    I want to accumulate enough fund for my post retirement life after the age of 55. Please suggest me some good investment option. Currently I can effort Rs 10,000 monthly in addition to my current investments.

    Reply
    • Tuhin-Use the same two funds but 70% in the above mutual fund and 30% in PPF.

      Reply
  4. Hi
    I have started investing in MFs recently .I am a new investor so I have invested through NJ wealth ,they created demat account for me.My investments are SIP:

    Reliance small cap fund -growth (RP)-1000 p.m
    L&T emerging businesses fund-growth (RP) – 1000 p.m
    I wanted to continue them for 20 years.

    5000 in Reliance money manager fund
    this for short term.

    Is it advisable to do transaction through NJ wealth account?

    thanks

    Reply
    • Jyothi-First wrong thing you did is opening demat account for investing in MF. It is not at all required. Second thing, not did proper asset allocation between debt and equity. Third thing, Reliance Money Manager is ultra Short Term fund, which I think your adviser sold you as if you can withdraw it any point of time.

      Please be cautious with your adviser and follow this post fully for better understanding “Top 10 Best SIP Mutual Funds to invest in India in 2017“.

      Reply
      • Thank you sir,as I am already opened demat account,may I know how it will effect? What should I do now?

        Reply
        • Jyothi-You first check whether the units are available in demat DP account or not. If not, then straightly you can cancel the Demat Account.

          Reply
  5. I’m following you from last week & read 4-5 articles and found interesting & educational.
    I’m planning to invest in ELSS as below, please correct if you find something better (80C vacuum available around 90K)

    #1. DSP BR Tax Saver Fund Direct
    40000 lumpsum
    2500 SIP (Jan~Mar) 7500

    #2. Mirae Assest Tax Saver Fund – Direct
    20000 lumpsum
    1500 SIP (Jan~Mar) 4500

    #3. Sundaram Long Term Tax Advantage Fund Sr 1
    10000 lumpsum

    #4. Motilal Oswal MOSt Focused long term fund
    5000 lumpsum
    500 SIP (Jan~Mar) 1500

    Overall :
    75000 lumpsum
    13500 SIP

    Reply
    • Vishal-Why so many funds and why not one or two? It creates portfolio overlap. Also, what is your financial goal? How long it is? What asset allocation you followed between debt and equity?

      Reply
      • Thanks for your reply !
        Let me response point by point & seek your expert advice !

        Why so many funds and why not one or two? It creates portfolio overlap.
        – By opting 3-4 ELSS on the basis of Short & Long term returns, i thought of maximising the return while mitigating the risk.
        (Higher investment in Long term performing funds, while smaller return in new ELSS which have good results in year 1.
        – On the part of portfolio overlap, i tried to choose the funds, which are investing in different proportion or different areas.

        Also, what is your financial goal? How long it is?
        – It’s my first time in investing in MF. My core reason as of now is to Save 20% tax on 90000 (under 80C) with a comparative etter return from LIC/FD products.
        – Currently i am looking for 3 years lock-in period only, if found good return may re-invest at the end of 3 year to again Save the Tax & generate some return.

        What asset allocation you followed between debt and equity?
        – I already have Jeevan Anand (Sum assured 4Lk – 5 yrs old, 16 remaining) & 1 lumpsum product of LIC (Invested 40000 last year & expecting 1.2 Lk at 16th year)
        – Apart from this only PF i have in terms of investment (approx 5 year – Current avg 45000/yr)

        Reply
        • Vishal-Selecting based Short and Long Term returns? How can you say that small funds given best return in past means they perform well in future? Completely wrong strategy. You have to check the underlying portfolio of stocks. Also, never chase the returns. But understand your expected return and be stick to it.
          What overlap % you got after checking the funds?
          Never invest in a product for the sake of SAVING TAX. You will ruin your financial life. Invest for your financial goals. While selecting the products, then choose the tax efficient one. You are simply doing the REVERE. Investing in equity for the sake of 3 years lock-in and 3 years time horizon is the biggest blunder you are committing.
          Asset allocation-Are you be able to re-balance from these LIC products? Answer is NO, then why to hold such dummy products?

          Reply
  6. Dear Sir,

    I wish to invest an amount of Rs. 10,00,000 in Mutual Funds. The investing may be blending of Equity,Debt & Income Funds. The time horizon is of 3-5 Years. The investment may be a one time purchase .
    Have your professional advice for the right Mutual Fund Investment.

    Reply
    • Anand-For 5 years time horizon, I suggest you not to enter equity. Income Funds not Debt Funds?

      Reply
  7. Hi,
    Thanks Sir for providing such valuable information.
    I have invested in SIP mode Mutual fund for my daughter for 14 years (She is 4 years old) in the following scheme.

    Birla Sun Life Frontline Equity Fund -Growth- (3000 monthly)
    Mirae Asset Emerging Bluechip Fund Growth (2000 Monthly).

    I read the article the Top ten Best SIP Mutual funds to invest in India in 2016 and that post is good too.(May be i had invested it differently if i read it earlier)
    I am investing some amount in PPF (5000 monthly )too.
    Now i am thinking of investing around 3000 in Sukanya Samridhi Scheme.
    But my Bank ( ICICI ) where i have a saving account told me to invest in ICICI’s Wealthbuilder Plan as they are saying it has more liquidity ( 5 Years blockage and after that optional deposits) and it provides better rate of returns too.
    Please Suggest.

    P.S. I can open the Sukanya Samridhi Account from SBI too if required as i have a demat account there too.

    Reply
    • Biswadeep-I will not go much into your investment. But strictly suggesting you to stay away from so-called ICICI Plan. Why can’t you tell ICICI guys that you are interested only in Sukanya Samriddhi Account? Because it is your money but not their.

      Reply
      • Thanks a lot for Your Reply Sir.
        Do i need any other SIP funds or the funds which i am investing currently are sufficient for future.

        Reply
        • Biswadeep-Those two funds along with proper debt portfolio in proportion to your timeframe is enough.

          Reply
          • Thank a lot..

            Reply
  8. Sir would you advice me for my financial planning? I am so much impress about your blog and also want to learn investing by you and your valuable opinions.. could you let me contact with you….

    Sorry for my English

    Regard
    Abhijeet

    Reply
    • Abhijeet-I am not SEBI registered adviser. Hence, I can’t offer that to you.

      Reply
  9. Dear sir ,
    i am a new investor i want to invest in ELSS based MF for long term more than 7 years for good returns & tax saving .if i am taking Axis Long Term Equity Fund directly from axis bank.i am having doubt
    1> which plan i have to choose regular/Direct
    2) how much they will charge me for regular and direct option.
    3> what are things should i have to watch before & after investment.

    sorry for my english.

    thank you so much . you are doing very great work

    Reply
    • Yogesh-1) Read above post first and you have to decide it.
      2) It the difference of around 1%.
      3) Portfolio managing, regular review and many more, which I can’t explain here.

      Reply
  10. Is investing through broker direct or regular MF.
    If through broker is regular ,than even in that instance while we do SIP its we who are doing it all by own without the guidance of the broking firm. Even monitoring is done by me…than its similar to direct and hence I guess to better go by Investa at least commission will not be cut

    kindly advice

    Reply
  11. hi sir..once again i wish to congratulate your worthy work in basunivesh.com.you have already said about direct plan in mutual fund.i have a doubt on it.recently i saw nav of a fund ,on it nav of direct growth paln is higher than normal growth plan.can single fund have two nav value?kindly clearify this sir..

    Reply
    • Sivakumar-Yes, NAV for direct is different from regular. Because expense rate is different. But underlying securities and the mandate of investment is same.

      Reply
      • Thank you sir

        Reply
  12. Sir

    Thank u for information.

    I am IFA July 2014

    I am doing SIP and also advise SIP

    I make target my self as

    1) Do daily SIP ONE PER DAY
    1) One new investor per week

    Iam planning to fo more and more.

    But if commission will not get from AMC then ________

    Means charge the investor I fell very __________=

    Sir I am learner if any thing please update

    Thank u

    Reply
  13. Thanks sir, your article is very informative, i am thinking to invest in Mutual funds, and hence trying to find out which mode is benefitial.

    Reply
    • Mahalingappa-I already explained above. You can use the mode based on your comfort.

      Reply
  14. Sir,I wanted your advice on my financial planning can u let me know to contact u

    Reply
  15. but I heard for this do we have to pay 5000 rs DD per each complint register is it true or we any other option shall we proceed with sebi then what the actual process ?

    Pls Reply at the earliest.

    Reply
    • Rajik-I am not sure about Rs.5,000 as it is mentioned as not fee but nominal fee for the expenses. Which I think you will get back once your case turn towards you. So don’t worry and go ahead. Visit this site for more info.

      Reply
  16. Hello Sir,
    As per u r advice I complaint to consumer complaint of sahara Q shop and I got reply of they looking into the matter then after a long time again I send the mail stating that I had the last option to complint in consumer court or to SEBI, but I didnt get any reply from them against my complaint.
    then shall what step shuold I take now such that I get back my investment.

    Awaiting for you reply

    Reply
    • Rajik-In that case better to approach a consumer court. Go ahead.

      Reply
  17. after all discussion with the agent he is not at all ready to accept his mistake and finally we are the facing problem and what we can be done to exit from this fraud and recover our money minimum lose. I want to exit at the earliest.
    Kindly help me out

    Thanking you

    Reply
    • Rajik-That is the best available option you can have it. Thought to write it on this issue soon on my blog.

      Reply
      • sir,
        right now whats the next step we have to take.
        suggest.

        Reply
        • Rajik-Go to higher authority of that company means above managerial level. If not heed just inform them that you may go to consumer court or to SEBI. Share with me what their answer will be.

          Reply
          • okay I will get back to you

            Reply
  18. Awaiting for your reply

    Reply
  19. Dear Sir,
    an employee of sahara staff has mis-guided and made me to invest in sahara
    Q-shop H-plan Advance as he mis guided as your amount will be as FD, but after i got the orginal BOnd from the head office after several months, nothing is mention like a fixed redemption date or value it only mention as plans terms & condition I will get bonus points as per their product consumption.
    but still i have big question mark regarding this plan, I follow-up the employee who misguided me & I complint to branch Manager but I think he also a part of this game,they both cheating the public and making their commission.

    Now, first I want to know is what actual this Sahara Q shop Plan H means and is it safe to me remain in same or it is better to exit, if yes then how can exit from this fraud. Kindly help me out in this matter.

    Reply
    • Rajik-Sorry for delayed reply as I was out of city for few days. No need to review of this product, as name itself suggest like shopping card, what you said is correct. You shop and get points for this. Do you have any proof showing that agent told you as an FD? If not then catch that same agent and ask him first to give in writing whether this is the FD or normal shopping card. Why you stopped to manager level only, approach to higher level. If still not heed then reply me, I will tell you the way to budge them 🙂

      Reply
  20. Yes I know. I used ‘balanced’ in a relative sense. Some of the articles available are simply nonsensical. There are really no real problems for planners to track direct investments. They can clearly tell the client, “I am going to depend on you for rebalancing and monitoring etc. Do this, this this…. Else I will have trouble giving you advice down the line.”

    I am writing an article on this conflict of interest

    Reply
    • Pattu-Thanks for endorsing my views 🙂 Will eagerly waiting an article on this issue.

      Reply
  21. Dear Basavaraj,
    First congratulations for writing a balanced article. I have championing direct funds publicly but have suggested regular plans to a few people on a case by case basis.
    (I am of course a free-only planner :))

    Are you a fee-only planner?

    In my opinion if a fee-based planner who is a CFP
    writes a biased article on direct plans (easy enough to find them) then it is a direct contravention of their ethics code.

    Planner or investor, one have to understand this:
    MF investing is not a laundry service. Every investor irrespective of route should understand the way a fund operates. So I think promoting direct investing is encouraging people to learn.

    It is such a pit that except you, NO one in the financial services have even mentioned that you can seek MF investment advice from a planner and go direct.

    such people have absolutely no right to talk of financial literacy.

    Reply
    • Pattu-Thanks for your comment. I will not tag myself as what type of planner I am. During the initial discussion itself I share all the options available to take my service and after analyzing their knowledge and comfort level I recommend the way of service they can opt. But final decision will be with clients. Now promoting which way is good to client, sincerely I am currently promoting both and I am more happy if they opt me for fee-only planner as I don’t have to run to each and every AMCs to give service 🙂 But I think I wrote more negative points about direct plans. Reason for that is to showcase the real issue. Hope you agree with my views 🙂

      Reply

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