Mutual funds may soon be available to the end customer directly. When you go direct, you avoid the sales costs….that is all. You still pay asset management charges – and as of now we have no clue how much. So lets do a look see…..

The other costs remain the same….now let us see what a 2.8% per annum cost does to your money over a 30 year period. (lets accept that you will remain invested in SOME fund or the other and the charges will be the same).

Well this is what is likely to happen to your fund:

Assumptions: Amount invested Rs. 10,00,000

Period of investment: 31 years

Market return: 15% p.a. CAGR, growth option – so the dividends have not been paid out to you, your only return is the CAP GAINS.

WELL, your money would have grown to Rs. 3,15,70,922. Wow not bad you have created a tidy sum of money, right? yes.

Maybe this could play an important part of your retirement corpus. Now let us look at what the asset management company made for ‘helping’ you to achieve this nice round sum.

Well they made about Rs. 83,56,398. Again not bad, especially if you are the asset management company / distributor combine…it can also be part of somebody’s retirement corpus, right?

Well what would have happened if you had invested in a mutual fund which charged say 0.5% amc? well well, the corpus would have been

Corpus amount: 6,51,85,133

Amc charges paid: 25,58,506.

Is this not slightly better than the previous model?

So if there was such a fund available you should be investing in that fund, right?

Well let us see if we can get a fund house which says ‘anyway it is an index fund so we will charge you a FLAT fee of Rs. 20,000 per annum, immaterial of corpus…then what happens?

Corpus:  Rs. 6,61, 24,399

Amc charges: Rs. 620,000 (easy it is not 20,000*31)

Well that is another Rs. 19L saved…hmm not bad is it not?

Will it happen? No. Can it happen? Never.

Why? simply because.

Once upon a time there were companies which needed money to do business. Then there were merchant bankers. Then mutual funds were created. Mutual funds required a regulator. The regulator said all people should be qualified. Then there were trainers, analysts, fund managers, distributors, auditors, trustees,….so the Rs. 83,56,000 that YOU PAY is to be given to all these people…


Sorry, this post is going to hurt tooooooooooooo many people, but as usual, will live with this.

I AM NOT SAYING that everybody should do direct investing…but recently did an exercise for a friend..and realised that for his corpus of about Rs. 20 crores he would have ended up paying about Rs. 2 crores over the past 7-8 years as amc charges and load…he said ‘i could have bought a flat in Ghatkopar’..well chuckle chuckle…


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  1. subbu,

    because if i know that a fund manager who achieved superior results over the past 14 years will continue to perform over the next 22 years, I do not need to worry. However that is a wrong assumption. NO MUTUAL FUND IN INDIA will be able to give you REAL returns along with a 2.8% albatross. Understanding reported results is of NO use, simply because ‘Past is NOT an indicator of the future’. The ONLY thing u can do as a customer is have a demonic control over costs.

  2. >> if u are good enough to qualify as an Engineer, MBA, CA, Doctor, what makes you a moron while investing

    Subra sir,

    I have made a similar comment before and I will make it again now.

    Do you drive your own car or do you have a driver? As for me (when I get higher up my organisation and can afford it) will go for a driver. Since the time and stress in traffic jams, I can do a better job as an engineer. My 2 hours everyday will be worth more than the 8K I pay to the driver, right? ( Yes, it will be… I know my billing rates 🙂 ).

    Why should I spend my weekends studying reports and statements? I pay Prashant Jain to do that for me.

    By the way, HDFC Equity charges 1.78% only as AMC. And that has been a super super fund for all these years.

    ps – I have been a MF investor for 9 years and a “direct” investor for 4 years. Total time taken for fund selection + SIP investments + tracking = approx 24 hours PER YEAR ( 2 hour per fund ).

  3. Love you Ashok…i hope u keep taking home loans from Hdfc (after all real estate gives >18% returns and home loan costs about 11% pa.), deal with Hdfc bank, and trade through Hdfc securities.

    thanks for investing in Hdfc mutual fund too…

    as a shareholder of Hdfc Ltd what more can I want? thanks once again. You are right.

  4. subra sir,by reading your blog,i started sip and now this article confused me a lot.Direct equity is always difficult for me.what should i do now?

  5. sai

    U continue SIP . Direct equity investment can be done only once u are able to come to take a decision on seeing the company reports.

    That tkes time:)

    Nothing to confuse.

    Subra tells here —> Direct equity cost you less than ur SIP.

    You need to take this in that manner

  6. Dear Subra sir,

    Thanks for the insight.I would like to know if you can advice a method for starters inorde to invest directly in the markets.Would picking the top 10 stocks in the portfolio of well managed large cap funds (good track record for more than 10 years) and choosing few common stocks across mutual funds and investing directly in these stocks be a good idea??

    It would be very helpful if you can comment on this as I do not have the expertise or the time to analyse each stock.

    Can you give us a broad guideline to invest directly in stocks as I have most of my investments in Mutual Funds and understand that the costs are pretty high.

  7. The “direct” plans seems to have started without fanfare. An SIP investment made in IDFC MF shows me as “IDFC-SEF-DIRECT-Growth”. Previously it was just “IDFC-SEF-Growth”.

    And looks like as predicted all old “direct” investors like me have to explicitly switch to this.

    Will we have a STCG impact if we switch?


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