Today I opened the HDFC mutual fund portal to make my monthly purchases. I was pleasantly surprised to find that the number of funds had doubled!
For example: HDFC Top 200 has a new sibling ! HDFC Top 200 Direct! The same is true of all other funds.
If an investor chooses the direct option no brokerage or commission will be paid to fund distributors and the NAV of the direct scheme will be higher than the usual scheme. Over a long period of time investing in a good ‘direct’ mutual fund will provide higher returns than the ordinary scheme invested via a distributor.
Use this calculator to find how high expense ratios can impact your returns over a long period
Distributors are scared! Here is an article from the director of FundsIndia who seems to worried about losing business! “Perils of investing in mutual funds directly” Do be sure to ignore what is being said!
So why are distributors worried? Dhirendra Kumar, Value Research Online offers an insight!
Mutual funds’ direct plans will enhance investor returns: Value Research
What should investors like you and me do?
1. Clearly understand why you are investing?
2. Choose a good fund. Use this guide for help if you need it.
3. If you a new investor choose the direct scheme without fear. You are likely to get a benefit of close to 1% each year. This benefit will compound to a significant amount in the long run
4.if you are an existing investor either with a distributor or are already investing directly in the old schemes like me, let us wait a while for some clarity about how the fund houses are going to handle the direct schemes. If you are holding a fund which is an underperformer then chose a good alternative and invest in it directly. A gradual shift to direct schemes is what I think is prudent. Since they are considered two different funds one has to be careful about
(1) increased exit loads! According to this story many fund houses have increases their exit loads fearing an exodus from the normal schemes to the direct schemes!
(2) tax implications before one switches from an existing fund to its direct counterpart.
Lets wait and watch before we act.
Are distributors going to offer these direct schemes? Why would they! FundsIndia to their credit does offer Quantum MF schemes which was always a direct-to-investor mutual fund. I don’t think they can afford to offer direct schemes from every AMC. They may start charging a fee for advisory services.
What are you going to do?
Connect with us on social media
- Twitter @freefincal
- Subscribe to our Youtube Videos
- Posts feed via: Feedburner
- We are also on Google PlusandPinterest
Do check out my books
Get it now. It is also available in Kindle format.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You WantMy second 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 youngearner
The ultimate guide to travel by Pranav SuryaThis is a deep 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 ₹199 (instant download)
Free Apps for your Android PhoneAll calculators from our book, “You can be Rich Too” are now available on Google Play!
Install Financial Freedom App! (Google Play Store)
Install Freefincal Retirement Planner App! (Google Play Store)
Find out if you have enough to say "FU" to your employer (Google Play Store)