By Anurag Singh
This answer can change lives of many in the financial sphere….quite literally. Now if you are a customer, you will benefit from it. The brokers however may not love this answer for obvious reasons. Here is all you need to know about this very critical question of buying mutual funds.
If you invest one lac each at one go in regular & direct plans separately & assuming that the mutual fund grows at 10% rate of return on your investment, the returns will look like above at the end of 10, 20 & 30 year period. As you can see, the power of compounding plays here & how the saving in expense ratio of 1% can give you 11 lac after 3o yrs whereas the regular plans gives you just 8.75 lac. Even after 20 yrs the difference is around Rs 1 lac which is a good 25% more than the regular plan. Do you want to pay THIS MUCH to the broker for his FREE ADVICE ?
What the broker "says" & what he "means"
Broker will say this: It is worth going thru broker as he would provide best funds & advice. Brokerage/trail commissions is a SMALL sum to pay for his advice. Also he shall REVIEW your portfolio regularly for better returns.
FACT is this: Brokers/bank RMs will mostly (tempted to say always) recommend you the most expensive funds that pay good money….. to the brokers, not you. So you don’t get the best funds to invest. You get the most expensive ones. Why do you want to pay them high commissions & still buy into the expensive funds? As far as review & tracking of the portfolio is concerned, they would always like to churn your funds into newer funds that pay more incentives. Review is for the brokers benefit, not yours. If you already know the good funds, why not invest directly?
Hope this answers & will encourage many to invest in direct plans.