Your online mutual fund investment platform is not free!

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Your online mutual fund investment platform is not free! Be it a bank or an online distributor, why on Earth would someone offer you a robust platform for transaction convenience and consolidation for free?!

A little background before we dig in: It is raining Direct mutual fund portals! As people start discussing the fees these direct fund portals charge, more and more investors are going, “but my investment platform is free! Why should I consider these?”.

For regular readers and active members at Facebook group Asan Ideas for Wealth, the answer is obvious. This post is meant for those who do not understand the difference between regular mutual funds and direct mutual funds.

Portals that do not charge any fee directly from you, earn commissions from mutual fund companies by selling so-called ‘regular mutual funds’. This is also true of independent distributors. The commissions are large enough for many of these portals to absorb the online gateway transaction charges associated with each transaction. If you wish to learn about these gateway charges, you could consult: List of Payment Gateways in India

Online portals that offer regular mutual funds plans are not free because, although there is no fee for holding/using an account, once you make an investment, the mutual fund company takes a small chunk from your investment and gives it to the portal as loyalty commission.

The loyalty commission fluctuates with the NAV of the fund and is applicable for as long as you stay invested in that fund. Meaning, as your investments grow, so does the commission.

Although these portals do make their business model clear in their websites, many regular plan investors do not seem to understand how it works.

There is nothing ‘regular’ about regualr mutual funds, but they are called so because they are older. The newer option (already 3+ years old!) is referred to as the direct mutual fund plan.

In a direct plan, there is no loyalty commission involved. Meaning no small chunk is removed from your investment.

Until Dec. 2105, there were only two ways to buy direct mutual funds:

  • Directly with the AMCs (no fees involved)
  • Via MyCAMs  for a few mutual funds (no fees involved)

Just this month, many more options became available

  • MF Utility – Run my 25 mutual fund companies (no fees)
  • Third-party portals: Invezta (live), BharosaClub (live), ORO Wealth (live), Unovest(launching shortly) and I learnt about one more in the works: Here is a comparison of such direct plan portals

Illustration: What you ‘pay’ for using a regular fund investment platform.

Take a fund like ICICI Focussed Blue Chip. As on Jan 4th 2016, a 3-year SIP in the regular plan of this fund would have given you ~ 13.4% return.

A similar investment in the direct plan of this fund would have given you 1% more because no commissions are taken out.  For Franklin Indian Smaller Companies fund, this is about 2.2% more!

For a Rs. 5000 SIP in ICICI Focussed Blue Chip, the direct plan would have given a corpus which is ~ Rs. 3,300 more.

This is not a constant difference! The longer you stay invested, the larger it will become.

For example, the ICICI fund direct plan SIP corpus after 1Y was only 0.34% more than the regular plan counterpart.

This grew to 0.79% after 2Y and 1.47% after 3Y (~ Rs. 3,300 for a Rs. 5000 SIP).

This gap will only keep getting wider.

Read more: Returns Comparison 2016: Direct Mutual Fund vs. Regular Mutual Fund

If you like some projections into the future, try this: Illustration: Direct Mutual Funds vs. Regular Mutual Funds

With many options now available to invest in direct plans from a single portal either for free (MF Utility, CAMs) or via the 3rd party portals mentioned above, it is only a matter of time before more and more existing investors switch to direct mutual fund plans.

Commission -free investing is here to stay!

A guide on How to Invest in, or Switch to Direct Mutual Fund Plans

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, 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. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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    1. i believe one should sell and reinvest into direct MF provided you hold more than 1 year to avoid short term gain and wxit charges

    2. i think , you can switch from regular to direct, if you got registered for online either with the AMC or MF UTILITY (if it is working). You have to pay exit load as applicable for regular.

  1. I came across the below sites as well for direct MF investing. I havent tried or explored them though.

    1) ifastfinancial

    2) Karvy lists direct MF in the list of top performing schemes, but not sure if they allow to invest in direct Mfs through them.

    Also I would like to share an email I got from CAMS for my query about direct MF

    We wish to inform you that investor can invest in direct plans through myCAMS. You are requested to select the direct schemes accordingly. For direct schemes no broker details will be asked. The word “direct” will be mentioned in the direct schemes.

    Out of the 15 AMC’s serviced by CAMS currently the below mentioned 11 AMC’s only participate with online financial transactions (additonal purchase, switch, redemption, STP, SWP) in myCAMS.

    S.No. AMC List
    1 Birla Sun Life Mutual Fund
    2 DSP Black Rock Mutual Fund
    3 HDFC Mutual Fund
    4 ICICI Prudential Mutual Fund
    5 IDFC Mutual Fund
    6 Kotak Mutual Fund
    7 L&T Mutual Fund
    8 PPFAS Mutual Fund
    9 SBI Mutual Fund
    10 TATA Mutual Fund
    11 Union KBC Mutual Fund
    Fresh Purchase (new Folio creation) is currently enabled in the below AMC’s:
    S.No. AMC List
    1 Birla Sun Life Mutual Fund
    2 DSP Black Rock Mutual Fund
    3 ICICI Prudential Mutual Fund
    4 L&T Mutual Fund
    5 PPFAS Mutual Fund
    SIP is currently enabled in the below AMC’s:
    S.No. AMC List
    1 Birla Sun Life Mutual Fund
    2 DSP Black Rock Mutual Fund
    3 PPFAS Mutual Fund
    Please do not hesitate to contact us for any further queries or clarifications. Assuring you of our best services at all times.

  2. Informative post Pattu, as always. I have a couple of observations, and would like your views
    a) Lets take MFUtility – As of now, the platform is co-owned by a majority of the licensed AMC’s in India. While they don’t charge a fee, they do incur platform related and employee related costs. While they may absorb losses for a while, at some point they will start charging a fee or a differently worded ‘investing fee’, BECAUSE they need to atleast cover costs; assuming they are in the business for charity – unless sponsored by the Investor Protection Fund or an equivalent.

    b) I believe 2-3 ‘direct MF’ platforms have been launched in the last few months, if not days. They may not charge a penny for investing in direct funds, but since they are not a charity organization; at some point in time there will be a charge – either a flat fee or an AUM based fee or a migration to ‘freemium’ model -to cover costs, to pay salaries and to make money (VC/PE fund will expect a multi bagger return, yaar :)). Lets look at the freemium model – There are atleast a couple of online investment portals that sell regular MF plans (and ofcourse make money out of it), but let you invest in FD’s of HFC’s and other pvt cos; without charging a dime. They may make money via the trading a/c, research, income tax filing or any other feature that they provide or plan to launch. Net net – The ‘free’ will sooner or later be replaced by ‘fee’ or ‘freemium’. – This can be a post in itself..

  3. Pattu sir, can you make the calculator or analyzer in which, if investor makes investment in direct plan and pay a fee upfront and AUM based to their fee only planner. After paying all about fee in all tenure , what would be getting the net returns and corpus in the hands of direct plan investors . Will be he getting net return post payment of fee equal to or less than regular plans, if he goes direct. Many clients are asking for this question.

    1. Dear Mr. Kamath, I find all the major private and PSU banks are available in MFU. Though a definitive list is not there in MFU web site, but any bank that is CBS enabled should be in their list. I have tried HDFC , AXIS, ICICI and SBI and faced no issues.

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