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POSTED BY ON January 20, 2013 11:46 am COMMENTS (10)
Dear All, seek all of ur advice on investing on direct palns of AMCs of several MFs.
As you know, every AMC has launched Direct plans and they allow investors to invest directly with an AMC without paying the distributor commission. AMCs usually charge 2.5% annually from investors and around 0.40-0.75% of this 2.5% annually is paid to distributors. Now, investors can avoid paying these commissions and it will translate into more returns for investors every year.
Pls clarify if this realy works and how?
Pls refer to below link.
http://www.valueresearchonline.com/story/h2_storyView.asp?str=21867
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Dear Ramesh,
Your response is helpful indeed. Yes, I have been spoilt for over a decade of Mutual Fund investing through ICICI Direct phone banking! I have not given up but was sharing my initial experience in investing in a direct plan.
I am still grappling with the initial inertia! I am thankful to you for your helpful tips! Yes, I got your point: No pain, no gain!
Dear Ashal, thanks for your input. Shall look into it as well.
With kind regards, Kapil Tiwari
If you are an existing investor in ICICI, you should just apply for HPIN directly, which I think is direct online in ICICI and Franklin AMCs. Just check it out.
Dear Ramesh, well done. Spot on. Kudos to you.
Dear Vishal, I do hope after reading dear Ramesh’s reply, you can define your own action plan.
Thanks
Ashal
Dear Kapil, please invest in Quantum Long Term Eq. ,India’s first direct to investor fund since it’s inception in March 2006.
Thanks
Ashal
The AMCs are not assisting investors choose the correct application forms and filling them correctly! I have taken my first step to invest in a direct plan of ICICI Prudential. First, on the phone, they promised an “advisor” will call me to help me out. No one called me. Then I requested that they send just the one or two application forms I need to fill in for my particular SIP investment. They sent me a 49-page link having several application forms with 3-4 pages of detailed instructions!
I have not given up but am wondering whether this novel and noble direct plan route is being ambushed for some reason.
By the way, does any AMC offer direct plans online?
What do you mean exactly?
Direct Investing means you have to do the legwork of the distributors or the bank people YOURSELF, for the benefit of having an expense ratio from 2-2.5% to 1.5-2.0% (roughly a 25-30% reduction of the expense ratio). For that, you have to do many things including:
1. Being savvy enough to find what funds you should have with you.
2. Being savvy enough to manage the logins of those and someone in the family to know about that too.
3. Be able to manage through the initial inertia of getting signed up to an AMC.
4. Regarding ICICI Pru AMC, I just went through their site and the method is pretty “simple” (I agree, simple for me may not be simple for you).
I will just help you out with the things directly:
1. http://www.icicipruamc.com/Homepage.aspx This is the main page of the site. The “INVEST ONLINE” button is on top right side. Clicking on that will take you to-
2. https://www.icicipruamc.com/InvOnline/app/aspx/Select-InternetBank-User.aspx
Since, you are a new user, you will have to select New Investor. clicking on that will take you to a short page describing what you need to do:
3. a. Download application form (link is http://www.icicipruamc.com/mutual-fund-application-form.aspx# ). You need to download the Common Application Form, which contains a comprehensive single application form (of 54 pages), citing the major details and how to fill the form for all their funds. They do not have a separate form for each of their funds. And the method to fill the form is there too. You need to search for which fund you want to invest, find out that particular scheme and go ahead. At max, you will need to fill up 2-3 pages of information (big deal, duh!).
Distributors clean up this form to get you to sign on those 2-3 pages. It is your choice to either find out those pages yourself, and keep the 0.5% yearly CAGR return with you or let an agent do that for you. Very simple Black and White scenario.
4. Fill up a cheque or DD and attach it with the form.
5. If you are mutual fund KYC compliant (in the latest manner), well and good. I do not think you are, so lets proceed further.
6. Get a copy of http://www.icicipruamc.com/Download/KYCForm-Individuals.pdf . Print and fill it up.
7. Attach a proof of identity (must be given in the above form).
8. Attach a proof of address.
9. Photograph
10. PAN card copy.
11. Put everything and goto ICICI Pru AMC office. Get an address for your city from this place- http://www.icicipruamc.com/ContactUs/BranchLocator.aspx
12. The person there should help you in correcting any mistakes or things you may have not filled properly.
Done.
You should be able to get a password in max 7 working days and you are set to go for that AMC.
Detailed instructions are not a part of some conspiracy, which you seem to indicate. They have been always there, it is just that we have been spoilt by the distributors into not reading them up for our own sake.
The direct plan route is novel (so there canbe some difficulties for some people), but the idea is absolutely correct.
This method is applicable for all AMCs. The KYC requirement is for all Sebi registered AMCs. And once done with any AMC, it will be applicable in all other AMCs as well. So one time thing only.
The Application form things are just for filling. You do not seem to have gone through the Scheme Information Documents which are 150 pages long, and gives you every kind of detail about funds of the AMC (transparency mandates those rules and are good).
Once you have done this procedure, you will get an online route.
Hope this helps. There can be some harsh language used above, but I believe that is for your own good.
Ramesh
Dear Brundaban, if you are in for a ‘marathon’, surely the direct plans ‘ll help you but if you are in for a ‘sprint’, sorry my dear friend, you ‘ll not feel the difference.
Thanks
Ashal
If the difference of 0.4 -0.75% which this article is referring to is interpreted as a reduction in expense ratio then it is double bonanza for direct investors in the long run:
1. low expense ratio
2. no trail commissions
I stand corrected in my earlier response.
1. trail commissions are part of the expense ratio.
2 the only difference bet direct and regular plan will be the expense ratio
HDFC Top 200 has a 0.59 % lower expense ratio as given in their website
(thanks to justgrowmymoney for pointing this out)
Here is the breakup of the expense ratio:
Say it is 2.5% or 250 basis points (bps)
100 bps goes to AMC fee (AMC pays upfront commission from this)
1 bps to trustees
10 bps to registrar and transfer agents
20 bps to operational expenses
3 bps custodians
80 bps distributor commissions
36 bps residual expenses (usually spent on end of the year advt!)
Large fund houses pay upfront commission from exit load corpus instead of AMC fee!
Source:
http://www.livemint.com/Money/xFhbO3suTix1GxKWCo558J/Will-a-hike-in-expense-ratio-matter-to-you.html
Expense ratio and trail commission are two different expenses.
Expense ratio accounts for fund manages fee, running the company, fee to the distributor (if any). This is capped at 2.5% by SEBi. Many funds have lower than these. This is charged from individual investor
As of now direct and regular funds have the same expense ratio. Expense ratios are declared every 6 months. For the direct plans the upfront commission paid to investors will not (should not?) be included and I expect lower expense ratios for direct plans.
This will only be marginally lower. Picking a fund with low expense ratio is the first important step to do.
Trail commission is a loyalty fee paid every quarter from the entire assets under management. So this is like less than 1% a year or 0.1-0.2% each quarter.
Earlier direct investors were also charged this expense. Direct plans are free of trail commission.
Trail commission are not part of expense ratios. I think the article seems to imply TC are part of ER. If so this is wrong.
You can use this comparator to see the return difference between direct and regular MFs
http://freefincal.wordpress.com/direct-mf-plan-vs-regular-mf-plan-comaparator/