Direct Investing in Mutual Funds
Too much is being made about the investing sense of the common man. Just too much.
If all investors are rational, they would ALL buy term insurance and invest the balance. This has not happened in ANY part of the world. All over the world ULIPs are sold by various names and in various shapes and sizes.
If all investors are rational, India would have had 5-6 mutual funds, 30 schemes, and a huge index fund AUM. The truth is we have 43 mutual funds, 100 more wanting to enter, 10 of them profitable, and 3-4 of them criminally profitable.
If all investors are rational, people will have one bank account, one demat account, one credit card,…..in real life they have at least 5 bank accounts, 2 bank lockers, multiple demat accounts…..
If all human beings were rational, they would buy vegetables, clean it, and cook at home. Tch, tch sensitive topic, right?
So if a ‘direct’ option is available, what will happen? Well people will have an option to invest directly.
Will people use it?
Yes
Why?
Simply because people will be pushed to that by websites, magazines, pundits…..
Should people invest directly or through an agent?
Depends on whether the ‘agent’ adds value in the real sense. If he does not, just ignore him
What value does an agent add?
He uses past data to tell you that Icici Pru’s Naren is smarter than Prashant Jain -because his past one year record is better than Prashant’s.
My take is Hdfc, Templeton and Naren Sankaran are all good fund managers 🙂 The irony is intentional.
Nishanth
A good agent can add value to novice or beginning investors or investors who are too busy to look at the nuts and bolts of the investment choices..for investors who are knowledgeable to do things on their own , the extra expense won’t make sense…and i’m one person who has multiple credit cards and bank lockers, but just one demat account and bank account:)….is that irrational…thinking over , can’t say it is because different credit cards give me different rewards based on my normal everyday spending needs:)
Siddhant
I do believe too much is being made out of this Direct plans,the main looooosers are going to be the big banks & Big advisors if the scheme is implemented properly,
the smaller agents client in any case has too less a money & too much lethargy for going direct…..
However I have serious doubt if the scheme will be implemented properly, especially with CITI , HSBC etc. charging 1.5% advisory charges in any case for doing much more damage to portfolio than the NORMAL AGENT or the vagaries of financial world.
Kaliyug what say…….
Dr M Chandrashekhar
Direct Investment is a good option– I invest in Quantum MF directly–they also have the lowest expense.
subra
lol Dr. Chandrashekar, you do not invest in a MF because the cost is low, you invest BECAUSE the performance is good. You choose a low cost INDEX FUND.
Dr M Chandrashekhar
Well, Subra– I accept your jibe with humility !!
Quantum Long Term Equity is doing very well & Iam happy with it
vipin
It is an option for those who can. Why so much noise.
Paul
I dont know how Quantum can keep their cost low. I get a letter every day(yes -everyday) from them as I am doing a daily stp of just 500 per day to their tax saving fund!
They are spending 1% of my investment everyday just to let me know that my sip is processed. To me that is sick and I stopped the stp after mailing them twice telling them to stop sending those letters!
For HDFC, Templeton and DSP BR, they didn’t do this – but they send me emails.
I have notices many “skeptical” things with my STP in Quantum Fund house. I explained it all to the lady(their engagement representative) and asked her why – twice! I am still waiting for her answer which she told will be given to me that day 5 pm!
Concepts are good at Quantum – but execution is sub par!
Mira D
But the direct plan was always there and I have been a direct investor for a decade. What is the fuss?
Loved the vegetable comment, it touched my Gujju heart.
rajivahuja
Sometimes agent or wealth advisors with some of the reputed Banks ie HDFC,Citi etc delude you. One should take one’s own call while investing one’s money.After all the advisors’s priorty might not at tune with yours. It is better to read Subra’s blog & then take their advice with a pinch of salt.
Vishnu
Not just Quantum. Every mutual sends you a physical letter
periodically and also when a transaction is processed. But, if you mail them, you stop getting it.
Now, I don’t get any physical mail from any of the AMC, including Quantum.
Prajith
Same here, has been investing in couple of Schemes including Quantum. No physical letters once I asked them not to send.
🙂 To be frank, would have gone buying through ICICIDirect (where my rest of MF purchases are) had they be selling Quantum. Just for the convenience of having all MFs at one place. Btw, I dont think I am paying an entry load at ICICIDirect. But they do charge some annual fee.
Direct posses minor inconvenience too. Like I have one HDFC Top 200 taken directly from HDFC. The investor name coming in the folio doesn’t have my initial so unable to sell the units till I get that corrected (as bank account used has initial). I am lazy to fill couple of papers and courier them. To avoid such thing, once the SIP got over, started one with ICICDIrect. Changing initial is still pending… SIP is more than 5 years old.
Nishanth
@ Paul — Sorry to hear about your bad experience with Quantum MF. I have been investing with Quantum MF for 4 years now and I have always got excellent customer service and prompt statements as well ( email , not physical). Didn’t think there was any over communication on their part.
Their flagship fund performs very well , plus having a low expense ratio, as well as the direct to investor model all appealed to me , hence investing my money in there .
Gomathi Shankar
@prajith icici direct charges 1.5 % transaction fee per transaction or 30 rs per transaction (which ever is lower). Charges are waived only of your portfolio value is more than 8 lakhs.
http://content.icicidirect.com/mailimages/SEBI_LP.htm
Rajeev
I agree with comment made above by Mira D.
Direct investing option has been available for quite some time now. So what is the big fuss about?
It saves cost and improves returns on capital employed. After the investor has been in the market for some time, he gets more savy about the options available. The net is a big help. I use the sites like valueresearchonline to check the scheme beforehand. SIP has also become easier due to direct debit facility. I feel, the investor should make a call whether to use an advisor or not.
My experience with HDFC is that the so called personal banker is more interested in locking you in some of their scheme than giving you good advise. Just last week I was being told how ULIP is the best option for me. I feel like taping him and posting it on youtube just to deter similar thing from happening again.
Regards
subra
Sorry will Mira D and Rajeev do their homework once again and comment? or stand up on the bench for not knowing what was direct till today and what starts from 1.12. ? sorry to sound blunt.
Prajith
@Subra, could you explain what you mean by direct. I thought (and it seems a lot of others also) it as directly buying from the fund house and that is existing for sometime.
Regards
Nishanth
Not stealing anybody’s thunder , but here goes:)…Direct investing existed all this while because investors could invest directly with the fund house rather than via the distributor..Whats going to change from next year is that , every mutual fund would offer 2 versions of each and every fund scheme.. one plan where investors invest directly and the other plan where investors invest via distributors …The 2 plans would have different NAVs viz the direct plan would have higher NAV as a result of the lower expenses charged and the distributor plan has lower NAV because of the 50-75 basis points commission charges for the distributor being subtracted from the NAV.
If anything wrong in this , more knowledgeable people can correct:)
Mira D
No apologies required, I stand corrected.
Wondering what happens to the investments that were made directly in the past? Do they get the benefit of this new NAV?
Rajeev
Nishanth,
I do not understand. The two schemes will then be separate investment portfolios not same.
Why not have common scheme and invest 98 Rs out of 100 paid by investor after paying 2 to distributor( numbers fictional. Do distributors continue to get trailing commission every now and then? I thought they get only up front commission when they handle the money.