POSTED BY February 22, 2013 4:31 pm COMMENTS (29)ON
I have few thoughts regarding expense ratio, just want to clarify
1) Firstly – expense ratio plays important role while choosing from a set of similar fund (more or less similar returns, category, risk profile etc.), or selecting same fund’s direct and indirect plan (which is 0.5 to 0.6% less for direct with AMC).
2) Secondly – It seems to me that even for same fund’s direct and indirect plan the 0.5 -0.6% less expense ratio will not provide much benefit to investors, the reason below:-
I have seen in many discussion forums – people just calculate the % difference in expense ratio and then compare for a long time period (say 10, 15 years) and for a given SIP amounts.
But, what they simply forget that as NAV comes low for indirect plan (due to high e.r.), so in SIP approach we actually buy more units than direct plan (where NAV is high due to low e.r.).
Hence for same amount of SIP (say 5000 monthly), every month we are actually buying more units in indirect plan rather than direct plans, and at the end of tenure the unit accumulation should be much higher and differences in return would be negligible (or nothing?).
Hope, I am clear about my points, and let me know if I am missing some crucial calculations here due to my ignorance.
What say financial advisors?