Direct Mutual Fund vs. Regular Mutual Fund: 2017 Performance Report

Published: January 4, 2017 at 10:34 am

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Jan 1st, 2017, marked the fourth anniversary of direct mutual funds plans. These are mutual funds you can buy without any commission, directly from the AMC, its aggregation portal MF Utility or one of the many new direct mutual fund + robo advisory portals. This is the fourth anniversary report.

If you are already a direct fund investor, please do consider sharing this article with your friends and colleagues who do not understand the difference and still losing money.

If you think you are no paying any charges by investing via your bank, stock broker or so-called “free portal”, please think again. The commissions are paid by the AMC, all right. But where do they get the money to pay commissions from? They get it from your investment value. That is why so- called regular plans or any fund name with no “direct plan” appended to it have a NAV lower than direct plans.

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What about advice? Who will advise people who go direct?

Well here the options:

1: DIY (as long as you have what it takes). Invest directly with AMC or use MF Utility.

2: Consult a fee-only financial planner who is registered with SEBI as a Registered Investor Advisor,  pay a flat fee for advice and invest in direct plans. I have a list of such advisors.

3: Invest via robo advisory portal: Invezta and Kuvera (independent of MF Utility) or (Unovest, Orowealth, Bharosa Club, Wixifi, and a few more apps dependent on MF Utility). This needs to be updated (will do soon) Comparison of Direct Mutual Fund Transaction Portals

Do not listen to anyone who says that you cannot get “professional” advice if you invest in direct plans. Switch to direct plans from your bank, free portal, sharebroker and mutual fund distributor (some call themselves fee-only financial planners) TODAY!!

Want proof before shifting? This where this report comes in.

Exhibit 1A: Difference in NAV

The difference in NAV between HDFC Top 200 or HDFC Top 200 regular plan and HDFC Top 200 Direct Plannew-nav-difference

This is the price you have paid for “conveniently” investing via banks, share brokers and “free” portals. Make that, huge price.

Exhibit 1B: Difference in 1-Y SIP Returns

This is the extra return (in %) because of investing in direct plans. It may appear small now but will make a huge difference after a few years: Illustration: Direct Mutual Funds vs. Regular Mutual Funds

1y-sip-return-differece

If you wish to know how I generated this graph from value Research, consult last year’s report: Returns Comparison 2016: Direct Mutual Fund vs. Regular Mutual Fund

The funds with lowest return difference are index funds!

Exhibit 1C: Difference in 3-Y SIP Returns

3y-sip-return-differece

Now, don’t get misled by the fact the return difference is till the same over 3Y. This does not make it small. This is where compounding matters: The difference is the year-on-year difference in returns. So each year, the difference grows by that difference.

Exhibit 1D: 3Y vs 1-Y SIP Returns

3y-vs-1y

Notice the 3Y return difference falls in a straight line when plotted against the 1Y return difference.

To give you a rough estimate. If the difference in returns after 1Y is 0.8%, then

the difference in corpus = (1+0.8%) after 1Y.

the difference in corpus = (1+0.8%) x (1+ 0.8%)  after 2Y.

the difference in corpus = (1+0.8%) x (1+ 0.8%) x (1+ 0.8%) after 3Y and so on.

The 0.8% difference will be the same (for this simple illustration) but the amount you lose for each you avoid switching to direct will keep growing. See above illustration link.

SO ACT NOW!!

Exhibit 1E: Some Examples

For the last 4Y, I have tracked the difference in returns and excess corpus because of investing in direct plans.

Some results from past 3Y data published in the 2016 report.

Return-comparison-direct-fund-vs-regular-fund-2016-A

Return-comparison-direct-fund-vs-regular-fund-2016-C

Now after 4Y:

four-y-later

The return difference will be the same but the excess corpus will keep on increasing.

I repeat: ACT NOW: How to Invest in, or Switch to Direct Mutual Fund Plans

Ps. TRUST NO ONE: Not me, Not the amc, not your “advisor”, not the media* – definitely not the media, not your fav mutual fund portal and the people who run it.  Check facts for yourself. THERE IS NO FREE LUNCH.

*: Dr Narendra Nathan from ET is the only exception that I can think of.

Seize the day!

Carpe-diem

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Read all reviews here: Amazon Reviews

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