Mutual Funds – Direct Plans are the only ones to invest in
1. For those who came in late (Jan 1, 2013) saw a silent but giant revolution in the mutual fund industry. All fund houses for all funds had to offer a Direct Plan for those who came to buy and sell directly to Fund House which had a lower expense ratio than the non-direct a.k.a (regular) plan. It works out to about 0.7% per annum for equity funds and a bit lower for debt funds. The difference is available on the website. Yes, it is the exact same fund with same fund manager but with different costs. So if Direct gives a return of 12% per annum, Regular will give about 11.3% return due to higher expenses mainly which are paid to the brokers and distributors
2. If your mutual funds statement does not show the words “Direct Plan” then you do not have the Direct Plans.
3. Funds bought through icicidirect, any bank side or the friendly guy who comes and picks your form and cheque are all regular and not Direct Plans
4. So now you must be thinking why should I cry over 0.7%, Here’s why, 1 lakh invested at 15%(per annum (direct plan) compounded for 20 years yields 16.36 lakhs and at 14.3% (regular plan) it becomes 14.48 lakhs. So a cool saving of Rs. 1.88 lakhs for maybe a day’s work over 20 years. At 20% and 19.3% the difference is 4.22 lakhs. It gets progressively worse if you increase rate and time period or amount invested. I hope you get the message
5. Now the tough part. How do you invest directly. Since you are already investing in mutual funds, you must be already KYC approved. Most fund houses you can now start a new folio completely online (Quantum and Franklin) I know do. For others like HDFC, ICICI, IDFC you need to make one transaction directly which involves just one visit to their office or a CAMS centre with your cheque book and PAN card. Once done you so everything online (SIPs, buy, sell,etc). You don’t have to run to office for every transaction
6. Stop all SIPs and investments in Regular Plans immediately and start Direct Plans
7. Move your existing invested money from Regular plans to Direct Plans. You’ll save a lot over the long term
8. If you are taking someone’s advice to invest in funds, I suggest you pay him just for advice but if you have to invest through him, give him 5% of your money and replicate whatever he does through direct plans. You’ll save a hell of a lot of money
9. After reading this if you still invest in Regular plans, you are either lazy or an idiot or maybe a lazy idiot
BOTTOMLINE : Invest in Mutual Funds through Direct plans only.
Hope this helps. Happy reading and comments. Amy help needed regarding this. Just write in comments. Ill be happy to walk you through this for free.
P.S. : For guys who feel they need to keep investing in regular plans, please give me your number, Ill send the forms with my broker code printed. ( I dont have one, but ill get one if there are still enough lazy idiots) If you are bent upon wasting money, why not give it to me.