Illustration: Direct Mutual Funds vs. Regular Mutual Funds

Published: January 29, 2015 at 7:30 am

Last Updated on September 4, 2018

Here is  a set of illustrations that highlight the benefit of investing in direct mutual funds for your long-term goals.

First some good news: MF Utility a portal in which investors can consolidate their holdings in different AMCs and invest in them with a common account number (CAN) will start operating from March.  You can start applying for CAN by sending the form  (courier should do) available at MFU to a point of service along with a printout of KYC confirmation from CVL KRA (thanks to Erin Jacob from FB group, Asan Ideas for Wealth) for finding this out.

However, when I called the Karvy office at Chennai, they did not know what MFU was and asked which AMC produced such a mutual fund!! Therefore, please call the local Karvy office listed at MFU to find out if you can send it to them. Else call MFU and ask them if the courier can be sent to them (Mumbaikars can sumbit it in person. It is in Thane west).

Once the CAN is generated, wait for the folios to get consolidated and explore the features. Suggest you transact only after you understand the facilities and limitations. Here is an FAQ

Will be portal be as comfortable for transacting as individual AMC accounts is something that remains to be seen. Also, we need to give it time to evolve.

The purpose of these following illustrations is to urge you to go direct without waiting for the MFU CAN. If you are worried about multiple logins, use a password manager with an offline master password for security. If you are worried about ‘managing’ multiple accounts, I can assure you that it does not matter much as long as you are not a trader in mutual funds who buys and sells every other day.

Where there is no will, there are only excuses. Such people are likely to crib about MFU too. Can’t eat you cake and have it too.

Request new investors to first learn about how to construct a minimalist mutual fund portfolio  This way, the folio is clutter free to begin with and hopefully remains so.

Lump Sum Investment

Direct-fund-vs-regular-fund-4

 

The values are in Lakhs. An investment of Rs. 1 Lakh would result in an excess corpus of close to 1.4L if the direct mutual fund has a constant lower expense ratio of o.5%. The investment duration in all illustrations is 20 years.

If you are not confident about picking and managing mutual funds, seek advice from a fee-only planner who is not paid by an AMC and go direct.

People argue that distributors help in keeping emotions in check with regular plans, thereby ensuring an investor continues to stay invested. There is no evidence of this as far as the entire distributor community is concerned (exceptions don’t make examples). Investors continue to buy high and sell low.  When there was a prolonged sideways market after the 2009 recovery, the number of distributors dwindled alarmingly.

Banks are main sellers of regular plans.  Chuck your mutual fund association with your bank today. I have seen the enemy. He is us and banks.

This is the extra corpus divided by the lump sum investment for different CAGRs.

Direct-fund-vs-regular-fund-5

 

Rs. 1 Lakh earning 15% cagr over 20Y will result in an extra corpus of Rs. 1.4 Lakh.

Institutions who hold direct debt mutual funds for short period of time will get a much lower benefit. However, since they would invest in crores, it is still significant.

Constant Monthly SIP

Direct-fund-vs-regular-fund-2

 

Increasing Monthly SIP 

Direct-fund-vs-regular-fund-1

 

This is also known as growth SIP or step-up SIP. Check out  this step-up SIP calculator

Obviously the benefit more, because you invest more.

This is the extra corpus divided by the first SIP investment for different CAGRs.

Direct-fund-vs-regular-fund-3

 

Seize the day. Be a DIY investor. Switch to direct mutual fund plans. Mutual fund investing is not rocket science. Learn how to track funds wrt a financial goal. Use VR online portfolio or my automated mutual fund tracker  and take control. Trust me, it not time-consuming and you would enjoy it. After all, whose money is it anyway?

Carpe-diem
Source: www.keepcalm-o-matic.co.uk
Do share if you found this useful

How to profit from content writing: is our new ebook for those interested in getting side income via content writing. It is at available at a 50% discount for Rs. 500 only!
Did you know? We have more than 900+ videos on YouTube to explore! Join our YouTube Community!

Use our Robo-advisory Excel Template for a start-to-finish financial plan!

Join our courses in exclusive Facebook Groups!

  • 520+ members are now part of our new course: How to get people to pay for your skills! (watch 1st lecture for free). Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show how to achieve by showcasing your skills and building a community that trusts you and pays you!
  • Goal-based portfolio management! Join 2125+ members and get clarity on how to plan for your goals and achieve the necessary corpus no matter what the market condition is!! Watch the first lecture for free!  One-time payment of Rs. 3000 only. No recurring fees! Life-long access to videos (10+ hours content)  in an exclusive Facebook Group! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.

Want to check if the market is overvalued or undervalued? Use our market valuation tool (will work with any index!) or you buy the new Tactical Buy/Sell timing tool!
We publish mutual fund screeners and momentum, low volatility stock screeners .every month.
About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations based on money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association, IIST Alumni Association. For speaking engagements write to pattu [at] freefincal [dot] com
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any paid articles, promotions, PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
Our publications

You Can Be Rich Too with Goal-Based Investing

You can be rich too with goal based investingPublished by CNBC TV18, this book is meant to help you ask the right questions, seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want Gamechanger: Forget Start-ups, Join Corporate and Still Live the Rich Life you wantThis book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at low cost! Get it or gift it to a young earner.

Your Ultimate Guide to Travel

Travel-Training-Kit-Cover-new This is an in-depth dive analysis into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, how travelling slowly is better financially and psychologically with links to the web pages and hand-holding at every step. Get the pdf for Rs 199 (instant download)
Free android apps