Introducing Direct Plans
Effective from 1 January 2013, it is mandatory for MF to introduce direct plans for all schemes. Direct plans means investor invests in MF schemes without any distributor or agent. These direct plans will bring down investor cost up to 1%. MF can't charge marketing and agent commission expense on direct plans. Although percentage seems negligible but it will impact your overall portfolio. Assuming investor has 10 lac portfolio, he will save 10,000 Rs per annum which is really impressive. It will add into fund's return every year and impact will be more over long term.
How to invest in direct plans?
There will be separate plans for direct investments. For e.g. if you want to invest in HDFC Midcap Opportunity Growth scheme, you need to select HDFC Midcap Opportunity - Direct Plan - Growth while investing online or write cheque on same name for offline transaction. There will be separate NAV for direct plans. Definitely direct plan NAV will be slightly higher than regular plans.
More trouble for distributors
Distributors are currently least interested in selling MF products due to low commission structure. After this move, it will be difficult to find any distributor who will promote or propose MF investments to investors. Informed investors will take direct plan route for their investments to earn additional returns. There are some arguments favoring distributors that investor will not be able to make right decision by his own which is baseless. With little homework and huge knowledge available on internet, investor can make right decisions. Investors in rural areas, can go for distributor.
What about existing investments?
Assuming investor has 10 lac portfolio investing in different MF schemes through direct option earlier. But now if he wants to switch to direct plans, there will be applicable exit load as per scheme offer document. So it is not advisable to switch existing investments right-away without understanding cost associated with it. However, new investments can be made in direct plans without any hesitation. Investor can discontinue their SIPs in existing plans and enroll for SIP again in direct plans.
Mis-selling trick
Last but not least, distributors will sell regular plans using simple trick. Direct plans will perform better than regular plans. So direct plan's NAVs will be higher. For e.g. regular plan NAV is 15.51 but similar direct plan NAV will be 15.55. Distributor can ask investor to buy regular plan explaining regular plan is cheaper than direct one. Happy investing.......
Effective from 1 January 2013, it is mandatory for MF to introduce direct plans for all schemes. Direct plans means investor invests in MF schemes without any distributor or agent. These direct plans will bring down investor cost up to 1%. MF can't charge marketing and agent commission expense on direct plans. Although percentage seems negligible but it will impact your overall portfolio. Assuming investor has 10 lac portfolio, he will save 10,000 Rs per annum which is really impressive. It will add into fund's return every year and impact will be more over long term.
How to invest in direct plans?
There will be separate plans for direct investments. For e.g. if you want to invest in HDFC Midcap Opportunity Growth scheme, you need to select HDFC Midcap Opportunity - Direct Plan - Growth while investing online or write cheque on same name for offline transaction. There will be separate NAV for direct plans. Definitely direct plan NAV will be slightly higher than regular plans.
More trouble for distributors
Distributors are currently least interested in selling MF products due to low commission structure. After this move, it will be difficult to find any distributor who will promote or propose MF investments to investors. Informed investors will take direct plan route for their investments to earn additional returns. There are some arguments favoring distributors that investor will not be able to make right decision by his own which is baseless. With little homework and huge knowledge available on internet, investor can make right decisions. Investors in rural areas, can go for distributor.
What about existing investments?
Assuming investor has 10 lac portfolio investing in different MF schemes through direct option earlier. But now if he wants to switch to direct plans, there will be applicable exit load as per scheme offer document. So it is not advisable to switch existing investments right-away without understanding cost associated with it. However, new investments can be made in direct plans without any hesitation. Investor can discontinue their SIPs in existing plans and enroll for SIP again in direct plans.
Mis-selling trick
Last but not least, distributors will sell regular plans using simple trick. Direct plans will perform better than regular plans. So direct plan's NAVs will be higher. For e.g. regular plan NAV is 15.51 but similar direct plan NAV will be 15.55. Distributor can ask investor to buy regular plan explaining regular plan is cheaper than direct one. Happy investing.......
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