Direct Mutual Funds

When we fall sick, we go to a Doctor who does the diagnosis and prescribes medicines. Thereafter we go to the medicine shop to buy the medicine. We bait on the professional competence of the Doctor for cure of the disease. In case of financial products, be it insurance or mutual funds, most of us   buy the child plan or pension plan or do a SIP in Mutual Fund through an agent or a bank relationship manager. By the time we realize that products bought by us are not suitable for achieving our goals, it is too late.

We should visit a financial doctor to get the right advice, who can analyze our cash flow, investments, insurance policies, loans etc and recommend suitable products to achieve our financial goals. The products should be suitable to our needs. SEBI has now come out with regulation to register SEBI Registered Advisers(RIA) who are like financial doctors and have a fiduciary duty to act in client’s interest. There are more than 200 such individual advisers in India today.

Buying of Products

The Insurance Companies and Mutual Fund AMCs design products factoring two components; i.e. the price of the product and commission to be paid to the distributors such as Agents, Brokers and Banks. The buyers pay the amount to the Companies who in turn pass on the commission to the distributors. There are issues on transparency and disclosures on commission. In fact most of the misselling happens due to high commissions embedded in products. Unfortunately the performance of insurance agents and relationship managers of Banks are judged by the commission earned by them.

Emerging scenario

Thanks to technological developments, one can buy products directly through internet now which does not have commission components in it. The most popular of them are online insurance term plans which have become cheaper by 30-40%. Similarly one can also buy direct Mutual Funds and the NAVs of direct plans are higher than regular plans. This has no commission component in it and hence lower expenses ratios. Some examples are;

Sl no

Large Cap Funds

Expenses ratio(% of AUM)





ICICI Pru Focused Bluechip Equity





Birla Sun Life Frontline Equity





Large & Mid Cap Funds





Franklin India Prima Plus





Mirae Asset India Opportunities





Mid & Small Cap Funds





Franklin India Smaller companies





HDFC Midcap Opportunities





Mirae Asset Emerging Bluechip





Balanced Funds (Equity)





HDFC Balanced





Franklin India Balanced





Equity Tax planning





Franklin India Taxshield




 What is the right way?

If medicines are available on line with home delivery, should we buy it without visiting the Doctor? DEFINITELY NO.  Similarly in case of financial products we should buy the product online on the advice of a trusted and professional adviser since the financial products are becoming complicated day by day. SEBI  has come out with a new category of Registered Investment Advisers(RIA) who are  fiduciary and will act on client’s interest. The RIA may charge a fee for the advice but brings the following positives;

  1. Transparency: We are aware of how much we pay for the product and how much for the advice.
  2. Cheaper products: Online term plans are cheaper. We get higher NAV in case of Direct MF vis a vis the Regular plans due to nil commission.
  3. Regular review: A professional investment adviser will conduct regular review of the portfolio and suggest switches and withdrawals in case non performing schemes.
  4. Rebalancing: More than 90% of global fund managers say that asset allocation is key to wealth creation and not the schemes selection or timing the market.  Asset allocation is monitored through Portfolio rebalancing which is a major value creating service of professional investment advisers.
  5. Win- win: The commission saved in case of Direct plans can be utilized to pay the fees to the advisers who can provide value added services.

How to go about for Direct Mutual Funds?

We can buy online financial products by visiting the manufacturers’ website but it is advisable to get the professional advice and then buy it. It is believed that ICICI Direct and Policy Bazaar sell direct plans; but it is not so. There are other online platforms through which one can buy direct Mutual Funds i.e. I-fast and MF Utility.

There were issues on sharing of data by AMCs with RIA  in case of direct mutual funds which has been cleared by SEBI now. The data can be shared with SEBI registered investment advisers through the platforms .This will enable the adviser to review the portfolio and rebalancing of Direct MFs. This will be WIN -WIN for buyers of financial products.

Last modified on Saturday, 30 April 2016 06:37

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.


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