Is it unhealthy to buy mutual funds from an investment platform?

Published: June 27, 2019 at 11:00 am

In the last ten years, online mutual fund investing has been a gamechanger for both the investor and the industry. I think it is time to stop and ask is it unhealthy to buy mutual funds from an investment platform? Just think about the number of mutual fund investment channels available today, it almost seems like an endless list!

We can invest via AMCs, via RTAs (CAMS, Karvy), via Banks, via regular fund portals like FundsIndia, via the AMC consortium MF Utility,  via direct fund portals (that have sprouted like mushrooms after rain), via mobile apps (regular/direct), via demat accounts and now big players like Paytm have also joined. Like I said an endless list with revenue models ranging from: totally free (MF Utility) to commission based (eg FundsIndia) to fee-based (eg. Invezta) to free + sale of analytics (eg. Kuvera)

Before we begin, I would like to clarify that this is not a regular plan vs direct plan article. This is mid-2019 and only those unaware of the impact of conflict of interest and commission will still stick with regular plans: Illustration: Direct Mutual Funds vs. Regular Mutual Funds. That about 60% of the MF investing population is either unaware or in denial or too lazy to shift (because of portfolio clutter?) is another matter!

It is unhealthy to buy mutual funds from an investment platform?
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I am referring to two scenarios. For regular plans, it would be: investing via banks vs the local distributor. For direct plans, it is investing via AMCs vs direct investment portals. Personally, I prefer to invest directly via AMCs. This is both a consequence of habit (I was a direct with AMC investor even before direct plans were introduced) and perhaps a flawed sense of independence.  In any case, let me try and argue both sides.

Using mutual fund investment platforms is unhealthy

Mutual fund investment platforms (regular or direct) make it easy for you to buy. This ease of purchase is the biggest enemy to the investor. I have seen portfolio snapshots of people investing in portals/apps at AIFW (FB group Asan Ideas for Wealth) and they range from 5 to 16 funds for a TOTAL investment value of a few thousand!

It is have become extremely easy for an investor to clutter up their portfolios with these portals and therefore I would not recommend them to anyone, even advisors who wish to manage client portfolios.

The number one reason why most investors prefer such portals is a single window for transaction and tracking. Little do they realise that a free online portfolio tracker like Value Research with a direct account with one/two  AMCs is just as efficient.  The problem is restricting ourselves to one/two AMCs (at least that if not 1/2 funds!)

The AMC business is heavily dependent on pushing new products and these portals make it easier for them to do so. To make things worse, the portals can make its investors buy more funds than required via its mailers and unnecessary analytics!

Investors can clutter up their portfolios anywhere they want!

The opposite argument is also equally compelling. The small-time distributor can also suggest unnecessary funds or churn a clients portfolio. The direct-to-amc investor can also buy every new NFO after reading AMC emails.  So an investment platform is not necessary for investors to make a mess. They are perfectly capable of DIYing this!

The analytics that an investment platform offers maybe useful but all most investors want is the day’s losses or gains updated at 9 PM!  So this is an advantage for a small portfolio IMO.

Verdict (my opinion that is!)

The first time mutual fund investor should first understand that the number of mutual funds they need is ONE. Yes, one fund. If they can appreciate this then where and how they invest does not matter.

If they do not appreciate it, where and how they invest will again not matter as they will end up with a diworsified portfolio! Since most people cannot choose their poison, I would recommend avoiding investment portals. At least the rate of portfolio clutter would be slower this way!

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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 topics of money management. 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 on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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