InvestmentMutual Funds

3 main reasons to invest in Direct Mutual Funds

After writing a blog on a variety of topics, something that a lot of people requested us to probe into greater details about the mode of investing in mutual funds. Back in 2013, the capital market regulator – SEBI directed the AMCs (Asset Management Companies) to launch their funds in two different flavours, i.e. Regular and Direct mutual funds for all their current mutual fund schemes.

There is always seen an argument over choosing between direct and regular mutual funds. Regular and direct mutual fund schemes are just the two options to buy the same mutual fund scheme, run by the same manager who invests in the same stocks and bonds with the same amount of exposure in them. The crucial difference between two isin the case of regular plan, your AMC or fund house pays a regular commission to your broker or middleman as distribution expenses or transaction fee out of your investment corpus.Indeed, the situation is identical to almost any other product or services. If the manufacturer is supplying goods directly to the customer, then the cost can lower due to the absence of intermediary. The amount of commission varies between 0.75 – 2 percent per year. Whereas, a direct mutual fund plans, do not have any such commission to the dealer or distributor and along these lines offer higher returns.

3 Main Reasons Why Investing in Direct Mutual Funds makes Sense –

The low-cost direct mutual funds are slowly gaining popularity, especially among HNIs and corporate investors. However, many small investors are still stuck with high-cost regular plans. This is primarily due to lack of awareness.

1. Higher return means a much bigger corpus –

The fund management style and the expenses in both types of mutual funds are almost identical. Since regular funds offer a commission to other intermediaries from your investment pie; hence regular mutual funds eat up an extra 1 – 2 percent of your investments in the form of commissions every year. Although your monthly statement doesn’t reflect this amount, the NAV or net asset value of your mutual fund units adjust accordingly, which is not the case in the direct schemes. You can avoid this loss of wealth, and it’s a wiser option to invest in direct mutual funds which don’t offer such commissions.

Let’s understand this with an example: Assume you have invested Rs. 5,000 p.m. each in a direct and regular mutual fund scheme with an annual return of 12% considering a 2% expense ratio for a regular scheme.

Since mutual funds are the instruments meant for long-term investments, you would see that the return differ quite a lot. If you let the investment grow in the same way for 15 years, there will be a difference in earnings of Rs. 4,25,549, which is enormous compared to investment size and this entire amount goes to the advisors or agents as a commission.

Another way of looking at it is 1% (Assumption) as a percentage of return doesn’t matter, obviously 1/100 doesn’t matter (it’s small enough number). If you expect to earn about 8% each year, giving away 1% of that is giving away 1/8 that’s 12.5% giving away of your return every single year, and that’s significant.

2.  Brings Greater Convenience and Excellent Service Time–

Online platforms providing mutual fund utility for various fund houses and schemes, some platforms also provide data to enable research. Accessing free tools offered to research across mutual fund schemes from AMCs, users get comprehensive information about each plan, including past performance, historical returns, fund manager profiles, ratings, category performance, risk assessments and much more and this is the convenience which DIY investors want. You don’t require to see your physical advisors.It’s just way more convenient to track your MFs on the broker’s platform. Moreover, if you sell or switch your direct mutual fund investment, you won’t be charged any fees or commissions.

3. Comprehensive Scheme Aligned with your Goals and No Mis-selling

Many offline customers have a terrible experience with MF advisors and their services. People who go into bank branches asking for tax-saving funds walkout with focused funds or ULIPs (Unit Linked Insurance Plan), which is not at all suited considering their requirements. It’s a messy and often confusing affair trying to get the right advice from the distributor.

Most advisors just end up recommending mutual funds in which they have vested interest in the scheme or fund houses pay handsome commissions or which look better for them.The advice is thus biased towards whichever mutual fund gives the distributor higher commissions, thereby potentially mis selling a product happen which is not at all suitable to the unknowing investor.

Most people are unaware about the advantages ofdirect mutual fund. However, direct mutual fund platforms are making inroads and trying to make the mutual fund investing extremely simple and frictionless without any human intervention.

Tejas Khoday

Tejas Khoday

Tejas is the Co-Founder & CEO at FYERS, the youngest team to get NSE’s broker license. He has a specialization in finance and has over 10 years of work experience spanning across proprietary trading, risk management, and broking. Tejas & his team started FYERS, a technology-focused brokerage as a mission to transform the trading/investment landscape in India.

19 Comments

  • Avatar ASHOK PAL says:

    when will you launch new fyers market app. i am waiting eagarly. thanks

    • Tejas Khoday Tejas Khoday says:

      A good mobile app takes a few months to conceptualize and implement Ashok. We have started the process.

  • Avatar vikash says:

    Market watch-list: No customize facility . We can not add favorites scripts at top position… (it decided by fyers. It can changes script any time..)
    THE BIG ISSUE: Not possible to add indices (NIFTY50 and BANK NIFTY in market watchlist. There is no option to see nifty 50 today’s low high No chart.. where is support resistance… This is the big joke for your trading application even this simple feature is not availbe then how i will trade in nifty options……

    • Tejas Khoday Tejas Khoday says:

      Hey Vishash, are you serious? We provide a customizable watchlist functionality on Fyers Web. Moreover, you can load the maximum number of spot indices too. This is not provided by any other broker. We also have a seperate watchlists for indices, near-month commodity futures. We do provide the maximum historical charts for indices. Nifty chart is available from May 1998 and Bank Nifty charts are available from October 2005. You can get the OHLC data on the chart itself. You can also right-click on the chart and select Highs & Lows to get all the data you need about that. For support resistance you can use 6 different types of pivot points – https://fyers.in/introducing-pivot-points-on-fyers-web/

      We also have historical charts for options for each of the contracts. I guess you have not used Fyers Web properly. If you have any doubts, please do take a demo from our customer support team. You can write to us at support@fyers.in or call us on 080-46251111.

      • Avatar vikash says:

        Dear Tejas, I asked about Fyers market. There is no options. If you are using Fyers market app, request to please check.
        Second, Facing fund transfer in commodity account (it shows only capital) shared one video but there is no reply from your support office.

      • Tejas Khoday Tejas Khoday says:

        Hey Vikash, Oh okay. We’re going to re-do our mobile app very soon. I’m reaching out to our clients for feedback. I will forward a survey to your email. Please do give us detailed feedback. In the meantime, do give me the ticket number and I’ll have this checked.

      • Avatar vikash says:

        1. ticket number: 7080337 (Indices unable to add in watch list – Fyers market)
        2. 5520663 (commodity fund issue – Fyers market)

  • Avatar Sandy says:

    Does Fyers have any plans to launch a platform for direct mutual funds?

    • Tejas Khoday Tejas Khoday says:

      Hi Sandy, We are launching an MF platform this month or the next. I will write a separate blog post about this soon. Yes, we are considering direct Mfs.

  • Avatar Vinay S says:

    I also faced scenario of mis-selling, I went to one of the well established branch for mutual fund inquiry and I was keen on Balanced fund but, they pitched ULIP to me. After my own research about ULIP I found it is the most expensive product and not to fulfill my requirements.

  • Avatar Khan says:

    This is great, I was skeptical about Mutual Funds. This Blog has given me a clear picture to Invest in Direct Mutual Funds. Waiting for More from Fyers.

  • Avatar Sahana says:

    Mutual funds give good return overbank deposits and direct plans are well explained here in this page. I hold investments in gold and equities gold has less rate of growth and equity needs regular tracking and risk rate is higher compared to gold. Now I have found something interesting through this post where my investment gets a better potential to grow compared with gold and least risk compared to equity.

    • Tejas Khoday Tejas Khoday says:

      Hi Sahana, W.r.t your last point, MFs have equity exposure and that’s where they try to extract returns. So to assume they are better than equity is not true because they are mostly equity.

  • Avatar Pragya Sharma says:

    Is it good to invest in mutual funds for short duration?

    • Tejas Khoday Tejas Khoday says:

      By design, MFs are long-term investment vehicles. Short-term fluctuations should not be taken too seriously as it is part and parcel of equity investing.

  • Avatar Nidhi Tyagi says:

    How do I switch from regular scheme to direct scheme?

  • Avatar Bimal Kirty says:

    Direct mutual funds reduce purchasing cost as well as it is very easy to purchase.Fyers platform has made it more convenient in terms of analysing past performance of direct mutual funds.

Leave a Reply

Submit & Download
×
Submit & Download
×