3 years back, Thomas George invested Rs.5 lacs in Birla Sunlife Frontline Equity fund through a distributor of the fund. His friend Muhammed also invested same amount in same fund on the same day. Now Thomas George’s investment has grown to Rs.7,36,715. He got returns of about 13.79% annualised. Fantastic! But Muhammed’s investment has grown to Rs. 7,58,190 Which is about 14.89% annualised returns. How come Muhammed got Rs. 21,475 or 4.3% higher returns even though, both invested in the same fund on the same day?
Muhammed did not invest it through an agent or distributor. He visited the website of the mutual fund and invested directly. When you invest directly no commission is paid to the agent or distributor. So, that amount is also getting invested which leads to higher returns.
Mutual funds agents or distributors do not take commission from you directly. But the mutual fund companies pay them commission. So, the value that get invested will be less by that amount. Each mutual fund scheme will have a regular and direct option. The regular option is one which provides for commission. Generally the direct plans of equity and balanced funds seem to give 1% of more returns per year when compare to similar regular plan. For short term debt funds direct plans give 0.1% more returns for medium and long term funds the direct plan returns seems to be higher by 0.6% every year. For liquid funds the direct plan returns are higher by 0.06% every year.
The distributors often provide you analysis of the comparative schemes and helps you select the best in a category. This service is not available when you approach a fund directly because the fund company will provide information about their schemes only. So, there is a risk of getting lower than expected returns.
The alternative is to approach a SEBI Registered Investment Adviser who will advice you for a fee. You pay the fees, take the advice and invest directly. It can save you lot of money. Suppose you invest Rs.10 lacs in mutual funds through regular option. The commission account be anywhere near Rs.10000 assuming an average first year commission of 1%. The fees charged by the Investment Adviser will be a fraction of that.
Only tedious job is that you should visit each mutual fund company’s website to buy or redeem their scheme. But that is worth the money you save. You can get consolidated mutual fund statement about your holding from registrars like CAMs or Karvy which will help you see your investments in one document.
If you are first timer, you will have a doubt about where to start? You have to first register your KYC to invest. You can approach a mutual fund company or registrars like CAMs, Karvy, CVL etc with your address proof, PAN and photo. They will help you register your KYC.
If you are approaching a SEBI Registered Investment Adviser then they will help you register your KYC and advice you on where to invest based on your risk profile and investment time horizon. They will suggest you a portfolio which will be a combination equity, debt, balanced, liquid and gold funds.
Whether you take advice or not after registering KYC you can visit the website of the mutual fund company, whose fund you wish to buy. Register there as a new investor. They will ask you to submit your PAN number, Bank details and Nomination details. Once you submit these and confirm the details, your account will be created and there on you can invest directly.
The 3 year annualised returns of the top 5 schemes based on the AUM in equity, debt, balanced and liquid funds are provided in the chart for regular and direct plans. The current value of Rs.1 lac invested 3 years back and as on 27-6-2017 for both type of plans are also given.
|Scheme||AUM (crs)||3 Year Annualised Returns %||Value of Rs.1 lacs invested|
|Birla Sun Life Frontline Equity||17,404||13.8||14.9||1,47,343||1,51,638|
|ICICI Prudential Value Discovery||17,304||14.3||15.6||1,49,336||1,54,399|
|HDFC Mid-Cap Opportunities||16,606||21.0||22.1||1,77,173||1,82,144|
|HDFC Top 200||14,588||10.3||11.0||1,34,200||1,36,929|
|ICICI Prudential Balanced Advantage||19,043||11.8||13.2||1,39,742||1,45,057|
|ICICI Prudential Balanced||12,600||14.8||16.2||1,51,295||1,56,898|
|SBI Magnum Balanced||11,259||14.1||15.3||1,48,545||1,53,281|
|ICICI Prudential Flexible Income Plan||20,970||8.8||8.9||1,28,791||1,29,147|
|Birla Sun Life Short Term||18,677||9.5||9.6||1,31,217||1,31,610|
|Birla Sun Life Savings||18,586||8.9||9.0||1,29,147||1,29,503|
|Reliance Money Manager||17,607||7.9||8.7||1,25,622||1,28,437|
|Reliance Short Term||15,137||9.1||9.7||1,29,707||1,32,048|
|ICICI Prudential Liquid Plan||34,649||7.9||8.0||1,25,757||1,25,973|
|Birla Sun Life Cash Plus||33,074||8.0||8.1||1,25,847||1,26,159|
|Reliance Liquid – Treasury Plan||31,179||7.9||8.0||1,25,770||1,26,084|
|SBI Premier Liquid||27,285||7.9||7.9||1,25,515||1,25,740|