Are you not using Direct mode while investing in Mutual Fund?
Everyone invests their hard earned money. Only the choices differ. The mode of investment can be Bank Fixed deposit, recurring deposit, Mutual fund SIP/single premium, Life insurance (well it’s not an investment, but people do invest), Bonds, Gold, Art, Real estate, Future, Options and so on.
In recent times, Mutual fund has caught the attention of retail investors in India in a big way. It has appeared to be the safest bet, assuming the fund managers are smart (and honest) guys who are choosing the right scripts to invest on behalf of you. While MF has its own risks and benefits (as quickly told in the television ads), what surprises me is when people decide to invest in Mutual fund (possibly a smart choice) but choose the regular plans instead of direct plans (one of the dumbest decisions an investor can make).
Are you investing in Mutual fund via regular plan or in direct mode?
Regulators have mandated that all AMCs must have 2 types of schemes: One is through Agents (regular plan) while the other is Direct mode. The fundamental difference between these two is — the AMC is going to deduct 1% to 1.5% (or more at times) of your invested money every time if you go via regular plan in the name of Expense ratio. That 1.5% is going to the agents as their commission. Apparently, the agents are supposed to advise you & guide you towards your investment decisions which mostly doesn’t happen after the first buy decision has been made (in case of SIPs). But the agents keep on getting 1.5% on each of your payments irrespective of whether you are getting their service or not.
If you have gone for a SIP for 20k per month, you can easily calculate how much are you paying an agent every year and definitely you should use the rule of compounding to find how much richer have you made them so far possibly without any tangible contribution to your wealth.
The bottom line is — you are wasting your hard-earned money for nothing, just because you didn’t choose Direct mode of investment.
For all the reasons that you could easily guess, unfortunately, Direct mode is not publicized by anyone, except few good samaritans and personal investment advisors.
How would you invest in Direct mode: There are 2 ways of doing it.
1. You can go to the AMC website (Google for the name of the fund and “online AMC” together), create your own id/password and start investing in Direct mode. I used to prefer this way of investing. While this works perfectly fine and you can choose the Direct funds saving 1.5% on every payment, the challenge comes in consolidating the reports, viewing them in a dashboard and taking actions (buy/sell etc). You need to maintain multiple id/password for multiple AMC you choose as well. NSDL does send a monthly report, however, that’s a static pdf report where you can’t take any action directly.
2 You can use one of the platforms like Jama where you can start investing in direct mode, with no strings attached. You can see dashboards, daily tracker emails and you can buy/sell from the platform itself. This sort of platform is definitely a boon for people like us who don’t have much knowledge on various investment choices but want to see one single view of the investments.
If you calculate the difference of return between the Direct plan and regular plan, apparently it would be as big as the difference between vacation at New York vs. New Delhi.
Check this for more: https://www.jama.co.in/direct-plans-vs-regular-plans/
Well, if only a choice of a drop down can save me money for my next vacation, why not?? :))
Happy investing!
