Should you go for direct plans in 2017?
Every mutual fund scheme comes with a cost that is embedded in its net asset value. Equity funds can charge a maximum of 2.5% of weekly average net assets and debt funds can charge a maximum of 2.25%. Among others, this consists of the management fee that your fund house collects, sales and marketing fees, and distributor fees. A direct plan doesn’t have distributor fee. Let’s look at how much it can help you save.
COST SAVINGS
Let’s assume that your equity fund charges 2.29% in its regular plan and 1.49% in a direct plan. A back-of-the-envelope calculation shows that an investment of ₹10 lakh made in a direct plan for 20 years gives you back ₹1.26 crore against ₹1.09 crore in a regular plan, assuming your fund grows at 15% over this period That’s a difference of ₹17 lakh. According to fund tracker Value Research, the average expense ratio of equity funds’ direct plans is 1.39%, and for regular plans, it is 2.21%.
FINDING DIRECT PLANS
You could invest in a direct plan through multiple sources You can either submit your application form at your fund house’s office or at its registrar and transfer agent’s office. You could even buy direct plans on the Mutual Funds Utility (MFU) portal. There are a few other online portals, such as Invezta (by Valuefy Solutions Pvt Ltd) and Oro Wealth (by Alpha Fintech Pvt Ltd) which also offer direct plans. Such online portals run by private firms do your financial planning for a fee. If you don’t wish to avail of their financial planning services and just wish to invest in direct plans, there is a nominal fee either per year or per transaction. Effective 2016, you can also invest in direct plans if you are serviced by a Sebi-registered investment adviser. The adviser applies to mutual funds to get access to your investments so she can keep a track of your investments. Only the planner with authorised access can do so.
WHAT SHOULD YOU DO?
Sharad Singh, co-founder and CEO, Valuefy Solutions, which runs Invezta, one of India’s largest robo-advisors, and which also offers direct plans, said: “The expert investor may invest in direct plans on her own, but majority of investors, who actually need advice, should look at direct plans as ‘direct + advice’ ”