ARE MUTUAL FUNDS DIRECT PLANS SUITABLE FOR YOU?
Every MF Scheme should now have a direct plan as per SEBI guidelines. Direct
plans are good for savvy investors. One should take a balanced call before taking
a decision.
What are direct plans?
Securities and Exchange Board of India (SEBI) regulations dictate every MF scheme
must have a direct plan as well. This basically means investors can buy MF scheme
units directly from the fund house without any broker/distribution house etc. from 1
January 2013. As the middlemen are eliminated, these will have no distribution and
commission expenses. Therefore these schemes will have a lower expense ratio.
SEBI has asked AMCs to declare distinct NAVs for these. As the expenses are lower,
the returns on these schemes are slightly higher than the regular plans.
What are the advantages of direct plans for the retail investors?
Today if an investor buys directly from an AMC, the distribution
expenses/commission falls into the hands of the AMC. With the new ruling, AMCs
have to offer direct plans with distinct NAVs separately. This means the cost of
investing for the investors is less. Since expenses for the AMCs are lower for such
schemes, NAVs and returns should be higher. Industry experts estimate that this
could translate to yields being higher by 0.5%-1.25% for retail investors per year.
What are the disadvantages of direct plans?
Investors who are not well versed about investing in mutual funds should avoid
direct plans. They need to do their research thoroughly. They need to understand
where the scheme fits in their portfolio or in terms of asset allocation. All the
documentation would have to be handled by the investor alone like getting the
forms, filling it, attaching documentation, sending it to the AMC and then ensuring
that transaction takes place. Monitoring the NAV movements; keeping a tab on
charges; revision of portfolio; changes in expense structure and maintaining all
documentation will be the responsibility of the investor. These responsibilities may
not be easy for lay investors or first time investors. Changing from your existing plan
to a direct plan would have tax implications.
Investors who can manage portfolio decisions & logistics can leverage direct
plans.
Happy Investing
Source:Gettingyourich.com
Every MF Scheme should now have a direct plan as per SEBI guidelines. Direct
plans are good for savvy investors. One should take a balanced call before taking
a decision.
What are direct plans?
Securities and Exchange Board of India (SEBI) regulations dictate every MF scheme
must have a direct plan as well. This basically means investors can buy MF scheme
units directly from the fund house without any broker/distribution house etc. from 1
January 2013. As the middlemen are eliminated, these will have no distribution and
commission expenses. Therefore these schemes will have a lower expense ratio.
SEBI has asked AMCs to declare distinct NAVs for these. As the expenses are lower,
the returns on these schemes are slightly higher than the regular plans.
What are the advantages of direct plans for the retail investors?
Today if an investor buys directly from an AMC, the distribution
expenses/commission falls into the hands of the AMC. With the new ruling, AMCs
have to offer direct plans with distinct NAVs separately. This means the cost of
investing for the investors is less. Since expenses for the AMCs are lower for such
schemes, NAVs and returns should be higher. Industry experts estimate that this
could translate to yields being higher by 0.5%-1.25% for retail investors per year.
What are the disadvantages of direct plans?
Investors who are not well versed about investing in mutual funds should avoid
direct plans. They need to do their research thoroughly. They need to understand
where the scheme fits in their portfolio or in terms of asset allocation. All the
documentation would have to be handled by the investor alone like getting the
forms, filling it, attaching documentation, sending it to the AMC and then ensuring
that transaction takes place. Monitoring the NAV movements; keeping a tab on
charges; revision of portfolio; changes in expense structure and maintaining all
documentation will be the responsibility of the investor. These responsibilities may
not be easy for lay investors or first time investors. Changing from your existing plan
to a direct plan would have tax implications.
Investors who can manage portfolio decisions & logistics can leverage direct
plans.
Happy Investing
Source:Gettingyourich.com
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