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  • Should I invest directly in mutual funds or through an agent?

    Published on November 14, 2019

    In 2012, the Securities and Exchange Board of India (SEBI) introduced a plethora of reforms.  This comprised of direct plans in the realm of mutual funds. From January 2013, each mutual fund scheme was available in two options: a direct plan and a regular plan. The only notable difference is, in a regular fund, you have to bear the commission fees of the agent. On the other hand, in a direct plan, no extra fees are paid. Direct mutual funds plans are quite better considering the fact that the returns are good when compared to regular plans through a mutual fund broker. So, let’s explore the intricacies of Direct Vs. regular mutual funds.

    Why invest in a Mutual Fund Regular plan through a broker?

    A financial planner would always bring a potential difference to your return. Interestingly, with the help of a mutual fund broker, you can manage your portfolio more effectively. Usually, a mutual fund agent has a wealth of knowledge which in turn assists you to get sound financial advice. Since a financial planner is associated with mutual funds inside the market, he/she is well aware of the nature and quality of a mutual fund. It is also worthwhile to note that a mutual fund broker also monitors the performance of the fund in a continuous manner.

    Thus, he/she is capable of providing you with timely advice. If you are pondering upon the best mutual funds to invest, usually you would be on the lookout for sound financial advice. But while doing so, you should also keep one important aspect in mind. Always note that a mutual fund broker is well-adept with asset allocation strategies along with rebalancing services. These two essential traits of a mutual fund agent helps them to reduce the risk factor involved in volatile markets.  However, this does come with a cost.

    Why should you invest in a Mutual Fund direct plan without the assistance of a broker?

    Well, the only logical explanation that makes it worthwhile to invest in a mutual fund plan directly is that there is a reduced Total Expense Ratio. You do not need to bear the brokerage commission from your portfolio when you are investing in a mutual fund without a broker. Moreover, when you select a Mutual Fund Direct Plan, the amount which goes to the Mutual Fund broker is a good sum of money. Note that in direct Mutual Funds, the investors are usually suggested to conduct their own analysis so that they can select the investment options which better suits them. If you are looking forward to investing in a mutual fund scheme directly, you need to visit mutual fund websites to identify the risk-free investment options. It is also important to note here that direct plans are ideal for those who want a good ROI by investing directly in the schemes. You should also be able to manage documentation on your own while investing directly in these schemes.

    Direct mutual fund- The advantages of investing in them

    The notable difference between direct and regular mutual funds is the ratio of expense. Note that the scheme characteristics are usually the same in both the plans. When you are directly investing in a mutual fund without any third-party, you are not paying hefty commissions to the agents. You can appreciate your investment benefits which can cause an enormous differentiation over a certain time period. Even a minute percentage difference in case of mutual funds would provide you with notable differentiation.

    Here are some of the key advantages in a nutshell:

    • You are directly investing your money with the mutual fund house without any go-betweens or brokers.
    • You are not paying high commisions to brokers/distributors/agents which, over a period of time, can eat into your overall corpus.
    • You get the full 100% benefit of the returns from the investments.
    • The difference between garnering the full returns and paying out a portion to the agent could be huge if compounded in a time period of 20-30 years.
    • Direct plans are always more affordable and hence they are suitable for almost every budget.
    • Since you are directly investing yourself, you completely bypass the risks of mis-selling of insurance plans which is usually due to the propensity of agents to sell plans which generate higher commisions/value for them.

    The advantages of a regular mutual fund

    Well, direct plans are affordable to a great extent. But low cost shouldn’t be your only criterion while investing in mutual funds. Financial markets around the world are getting volatile day by day. Thus, you need an advisor who can guide you properly to invest for good returns. With the help of a financial advisor, you can analyze the performance of the Tata Mutual fund or any other fund for instance. An agent can also match the investor’s profile by investing in a fund which is ideal for your financial goals. It is worthwhile here to note that corporates have their own finance teams. This is the reason that it is simple to choose the correct fund for them. But laymen and normal investors need thorough guidance.

    Now you might have understood why it is crucial to select a mutual fund broker to get good ROI. However, the main criterion is that you need to have an investment plan which can accomplish your financial goals.  That is the key goal over and above everything else.