Regular Mutual Funds (Vs) Direct Mutual Funds
Last Updated: Dec - 8- 2019
Mutual Funds are the best investment medium to invest money with no great knowledge. The money invested by the people like you and me will be pooled and driven into the stock market by an expert fund manager.
The power of mutual fund is compounding. As many great investors said, "The more time you give your money; the more it replicates".
There are many types of mutual funds like equity mutual funds, balanced mutual funds, index funds, debt funds etc.
Equity funds make big money but with a small clause as the risk is also high. As the name says, Balanced mutual funds are the very much hybrid type of mutual funds where the risk and reward are moderate. Index mutual funds are more risk and less reward type of mutual funds.
You may go with best of your sight and knowledge. Here comes the question through which portal you should invest.
There again two types of mutual funds platform
- Regular Mutual Funds
- Direct Mutual Funds
Regular Mutual Funds platform:
These are familiar, unlike direct Mutual Funds platform. These platforms have agents, big brokerage houses that we need to feed them commissions. Due to the presence of middlemen, the expense ratio is high so the NAV is dragged down to the floor.
Where there is middleman involved, they mint money out of customer innocence. The only possible help you get from regular Mutual Funds platform is you are supported with an advice.
The advice they give is not worth the commission you pay.
For example, if you invest 10000 INR/ month for 30 years time frame. Let's calculate the compounding interest at 10%. The amount you get the end of maturity is 2.27 crores. If the CAGR is 11% the withdraw-able amount will be 2.83 crores. That is a whopping difference of 55 lacs.
So if you go with regular mutual funds you are paying Rs.55 lakhs as a Commission for 30 years
Did it sound huge?
Direct mutual funds:
Here the Asset Management Company(AMC) is directly consulted without any middle-men. So you don't need to pay anything as a Commission. You can directly approach any of the AMC websites and select the best mutual fund that fits your criteria. This will save you a ton of money for your long-term Investments.
These low-cost mutual funds are gaining popularity recently. You save a 1.5% upfront fees through direct mutual funds. Even though many people know direct Mutual Funds are better but they don't switch due to lack of awareness. 1.5% doesn't sound like a huge amount. But in the long run, you are losing a huge percentage of money at the maturity.
NAV is Net asset value which is calculated by the total sum of the market value of all the shares held and portfolio minus the liabilities or expenses in the holding period of time. In simple terms, it is the book value of the shares.
Expense ratio: It is the total value of costs associated with the management of a mutual fund in the term of policy.
of direct Mutual Funds platform will be higher than regular ones as the expense ratio is low.
NAV is inversely proportional to expense ratio
There are so many direct Mutual Funds platforms online like Paisa Bazaar, Zerodha coin etc. Over hundreds of them, Zerodha's Coin holds zero brokerage model for Mutual Fund Investments. You don't need to pay brokerage up to Rs.25000 worth of investment. After that, a nominal charge of Rs.50 flat per transaction is taken. There are no hidden charges. Whether the transaction amount is 5000 or 50000 only 50 rupees is charged
Conclusion: Nowadays people are more on the internet. I don't think they are complete layman about the Investments. There is a world wide web to answer your queries and clarify your doubts. So direct Mutual Funds platform is the best way to make your Investments. Be intelligent, retire rich.