Tag: Mutual Fund Investment

02 Jul 2018

Are you being over-charged by Financial Advisors like Us?

There have recently been many advertisements promoting ‘direct’ plans of mutual funds, giving out your ‘losses’ if you invest in regular plans of mutual funds as opposed to direct plans. Some officers have discussed it with us since they’re confused as to what is the truth. We would like to clarify the air about it.

First, we found that not all of those calculations put out in these advertisements are correct – most are highly exaggerated. The truth is that Direct plans will always be cheaper than regular plans simply because there is no Advisor fee built into it.  But we do want to tell you why direct plans may not be as rosy as these advertisements make it seem.

What is a Regular and a Direct plan in mutual funds?

In Direct Plans, you buy directly from the mutual fund company. Hence, you select the funds yourself, balance the portfolio, match it as per your future requirements so that money is available when you want in the right quantity, do the transactions, maintain the portfolio logs including of the SIPs you are doing, monitor the funds, identify where all changes are required and when, and then carry out those changes.

In Regular Plans, all these functions are done by your Advisor. Obviously, all these cost a fair bit of money and the Advisors have to be paid that cost for their time, effort, and knowledge. Hence Regular plans have that small fee part built-in which the mutual company charges you and then pays to the Advisory Company like us. But is that all that Advisors like us do? Let’s see.

How actually do financial advisory companies like Us help you

Most people underestimate the services that advisors provide. Here we give you a lowdown on what a ‘good advisor’ can do for you – please note that a relationship manager of a bank is not the same as an advisor, leave alone a ‘good advisor’

    1. Help you understand, formulate and quantify your financial goals: When you have multiple financial goals in life, you might get lost trying to identify and quantify each of the goals. However, a financial planner does this on a daily basis and makes the process much easier for you.
    2. Help you decide on the right asset allocation and the right funds: Do-it-yourself (DIY) investors in Direct Funds usually look at the highest rated funds or pick the funds with the highest 1-year returns. Fluke short term returns phenomenon, or how stable is the fund, fund manager and the fund house doesn’t show up there. Off-the-cuff funds like this may be better funds by virtue of being highly rated CURRENTLY but are they really suited to your needs? Of course, we’re not talking factoring in the scepticism about the rating schemes here. A financial advisor not only understands your requirements but also understands fund characteristics. He not only selects the fund best for you, but, more importantly, selects the fund most suited to your future needs. There is a marked difference in this subtlety. He saves you from driving a car by looking at the rear windshield only.
    3. Help you distinguish between funds: A DIY investor who looked at chart toppers and bought funds in the past couple of years, would most likely have picked mid and small-cap funds. Such an investor would have been in for a rude shock in 2018, seeing all the funds fall together like nine-pins since they all were essentially of the same breed. This is exactly the kind of investment decision that an investor can make if they think picking a fund from a rating website is easy.Let us take an example. Many DIY investors pick BOI AXA Credit Risk fund amongst debt funds because it shows up on websites as giving very high returns. Little do they know that this fund, on top of being a credit risk fund, has close to 20% of its investments in unrated securities. To add to that, it also has a very concentrated exposure to some of its top risky holdings. This understanding of the underlying portfolio, risks and quality is not something that simply comes in packaged portfolios of AMCs or on the rating websites. And this is just one of the examples.
    4. Help you review and rebalance: Goal planning, allocation and choosing funds is just the beginning. Real wealth building lies in periodic review of the fund performance, through scientific, quantified analysis by an exclusive research team. That is not something any direct platform can offer on a sustained basis. They likely do it one time to recommend funds initially and offer them like commodities. That, to our mind, is neither advisory nor research, and can hurt you badly in the long run, as we keep discovering every day from new investors who come to us with their current portfolios.
    5.  Help you tide through volatile markets: It is said that investments are actually done in the mind, and that all investments are ultimately emotional decisions. When value of investments tend to show a downturn, direct plan investors tend to panic because they have nobody to hold their hand, and they tend to withdraw their money or stop their SIPs. These are exactly the type of counter-intuitive decisions that hurt your portfolios. Advisors help you understand why the markets are falling and why there may not be any reason to panic. A correction offers a good opportunity to invest more money. And advisor helps you understand this and use this opportunity to help you stay on or buy more at lower costs.
    6. Help you devise a withdrawal strategy: Good advisors don’t simply tell you when and where to invest. They also tell you how and when to withdraw the money, when you need it. Whether it is about any emergency need or shifting money to safer avenues, closer to your goal, a good advisor will help strategize those.
    7. Help manage monthly income after retirement: We help people understand how much additional money do they need apart from their pension (if any), how to generate income from their corpus in tax-efficient and safe manner but also help them grow their corpus with limited risks.
    8. Your financial journey: A financial advisor doesn’t just look at your bank balance and tell you where to invest the money. A financial planner can hand-hold you through your financial journey. They can give you a holistic view of your requirements and plan your investment, insurance, and income streams.

Just think about this…

When it comes to investing, investors get fixated on the costs. In other areas of life, it is easy for people to understand the need for paying experts like Doctor, CA, Lawyer etc to get their job done. But financial planning is something people think they can do on their own. This view may have been correct when bank deposits and NSCs were the only options. But with today’s financial markets, that is not the case. And an investor could benefit a lot by talking to their financial advisors about their future life planning needs.

Yes, when it comes to the cost of such advice, you do have an option of paying a good Registered Investment Advisor (RIA) a fee for the service. But to think such a fee will be lower than the present distribution fee is a bit of a stretch. If platforms do offer you such low-fee services, please think a bit about how many banks and how many products like debit cards or credit cards or demat accounts or any ‘free transactions’ were offered for free initially and then charged later. A simple math will tell you that it is yet another marketing gimmick.

For most of these ‘free’ or Rs. 100 direct platforms, their revenue will come from cross-selling higher-cost products such as insurance or equity trading. To them, direct plan investors are ‘conduits’ to generate higher fee from other products. In other words, you think you are saving Rs 10 today, only to be made to pay Rs 100 in a higher-cost product cross-sold later. That’s why a few of the officers who had moved on to direct plans sometime earlier, are now back with us!

Please remember – ‘It does not matter how fast you are going, if you’re in the wrong Train!’

If you are an experienced investor, confident that it is your own game, you may choose to go direct. But for the majority rest, it is about paying ‘all-inclusive’ fee (for advisory and investment) with regular plans or paying a fair price separately to a Registered Investment Advisor. There is nothing in-between in any viable advisory service.

(Source: Adapted largely from an article by FundsIndia.com)

04 Dec 2014


For some unknown reasons, investing in mutual funds in India is almost always taken to be equity investing. This is despite the fact that out of a total of approximately Rs 11 Lakh Crores invested in mutual funds today, 70% is invested in Debt Funds, ie the funds which do not invest in equity markets at all. Consequently, investor perception of mutual funds is of a one horse race and that horse is stock markets.

The reality is quite different though. Mutual Fund as a class of investing is, in fact, not one single product unlike bank FDs, stocks or Gold. It is more like a basket which has three products – stocks, debt products and Gold – in all sorts of proportions. An investor can mix-and-match as per his liking and requirement. So a mutual fund can have all three or any two or just one single product as per the investor’s desire.Investor can choose one product with a mix of these asset classes or choose individual products of different asset classes – the choice is entirely his. And to top it, if chosen correctly, there can be seamless shifting between these classes. Thus, if an investor likes large company stocks today, he can invest in a good large-cap equity fund. But some time down the line, if the investor feels that some part of it should go to a safer debt product and Gold, he can shift a part to a debt fund and a Gold fund, while the balance can be continued in the equity fund. In case the shift is within the ambit of the same mutual fund company, it can be done without exiting out of the fund by simply submitting a switch request. Thus, mutual fund investing is more like an a la carte menu which gives you the flexibility of ordering bulk dishes, in small regular bytes (SIPs) or a combination of both as you like it. Taking out the money is equally easy and investor-friendly – it can be taken out in small bytes (SWP) or in a full or part bulk. Most of the mutual funds redeem the money in 3-4 working days. There are, of course, liquid funds where money is at your call within one working day.

While the mutual fund supermarket gives you this flexibility and ease, it does not disappoint you on the quality either. With expert fund managers managing your money, you would expect them to do better than if you were to manage it yourself. Table below gives out the returns generated by various categories of mutual funds over different time periods:-

Annualised Returns Sensex Top 5 Equity Funds average Bank FDs (past years) Top 5 Debt Fundsaverage Top 5 Balanced Equity Fundsaverage
1 Year Returns 38.1% 111% 9.5% 25% 58.2%
3 Year Returns 17.67% 40% 8.5% 14.1% 25.4%
5 Year Returns 10.9% 25.3% 7.5% 11.1% 17.3%


Bank FD returns have been taken to be of FDs done 1, 3 and 5 years back. Even the Liquid Funds, which are equated to Savings bank account, have traditionally given about double the returns compared to bank accounts.

However, tax incidence on the mutual funds has to be carefully considered. Dividends received from Debt mutual funds would be taxed more heavily than your income tax slab if you are in a tax bracket lower than 30%. Similarly, if you are in 10% tax bracket, short term capital gains (less than 1 year of investing) in equity mutual funds could mean a higher tax for you. On the contrary, long term investing in equity funds (more than 1 year) and debt funds (more than 3 years) could be very tax-efficient, in addition to giving you very good returns.

Due to such varied and beneficial characteristics, mutual fund supermarket could be a one-stop solution for almost all financial shopping (except real estate and alternative investments, for now) while meeting all requirements of a typical investor – wealth creation, retirement planning, children planning, financial goals planning etc. They are an ideal product for long term investing but do not disappoint even for short term investing as short as even a few weeks.


You can either call us on 9999 022 033 or write to us at contactus@humfauji.in to schedule a tele meeting with our financial planner and investment advisor.

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