P014- Biggest mistake an MF investor can make

[rski]

@kazurk The point I am trying to make is simple

1. If they hadn’t offered fat commissions The direct investors in that scheme would not have had a TER of .20

But because they offered fat commissions , the people in direct plan are being subsidised by those in regular .

Anyone with 2 brain cells who went regular should be redeeming and going direct in my opinion .

 

[rski]

@kazurk They can’t increase it . That is the beauty of it .As long as they continue paying yearly commission to distributors they can’t increase TER for direct

The formula is - TER - Minus commission paid .

 

[creation_aplogetics]

@rski Get your facts right, dude.

To give you an example, the TER for UTI Nifty Index Fund was increased from 0.1% to 0.18% just recently. If this is the case for an index fund, for an actively managed fund like a Flexicap fund, the SEBI allowed TER limits would be much higher.

 

[rski]

@creation_aplogetics I have got my facts exactly in the right place . It is you who have to get over your disbelief

The TER Formula for Direct is : Total Expenses - Commission paid to distributors

If the TER for regular is 1.77 % and direct is .18 it means on average 1.59 % is commission paid .

It also means as long as ICICI pays that trail commission , which it has to . The expenses for direct will stay below .18 %

In their zeal to shaft the regular investor they have created a class of direct investors who are being subsidised by the regular ones .

I know you will find it hard but look it up

TER for same Fund
Regular : 1.77 %
Direct : .18%

The regular investor who came via a distributor is paying 9 x expense for the same product .

This is the most hilarious part

 

[creation_aplogetics]

@rski Sure. And what stops the AMC from increasing TER for both the Regular and Direct plans, while keeping the difference constant at 1.59%?

 

[rski]

@creation_aplogetics Simple answer

SEBI . The calculation of TER is clear and done as per SEBI formula .

Further SEBI mandates that TER of Direct plan cannot exceed total TER minus Commission

Now since SEBI banned upfront , the 1.59% is the trail. That trail cannot be reduced easily . The distribution side will not allow it .

 

[creation_aplogetics]

@rski SEBI has only laid down an "upper limit" on the TER that can be charged for a fund, based on the AUM of the fund. Reference: ET Money

While keeping within these limits, AMC are allowed to increase/decrease the TER of any fund they offer. Hope that clarifies things.

You're point regarding the trail commission is alright. I'm just contesting your assertion that TER for direct fund "can't" be increased.

 

[rski]

@creation_aplogetics In this case there is no headroom to increase . That’s what I am saying .

 

[she2309]

@rski I may sound naive here, but I started an sip few years ago when it was not a direct plan. Now I wish to convert it to a direct one, but given the current returns that it is giving, I feel like investing into a better fund would be a wise idea. What should I do, convert it to a direct one, or close it and invest in a new fund?

 

[patriotraider]

@she2309 I'd think: Redeem and reinvest systematically over time, avoid exit loads and tax implications as well as catching of a market high or low.

 

[alexbd89]

@she2309 I too had SIP on Regular Mutual Funds for the last couple of years. Recently I stopped it and liquidated my investments. Now I am planning to start SIP in direct plans (on the same funds and a few funds).

You might want to check with your financial advisor before making any calls.

 

[rski]

@she2309 When I first went direct I took a simple approach

1. I stopped by SIP / STP
2. I visited the office and opened a new folio
3. Started direct STP

Redeeming in haste has an implication of taxes so think twice and do consult a proper fee only sebi registered advisor . Check his registration

 

[patriotraider]

@rski Simply:

1. NFOs are not interesting. Why go for something unknown when you can see track record of so many funds. Occasionally you can make an exception to this rule if you see a novel concept or something else worthwhile, but that's very rare.
2. If you are reading this forum, you are capable enough to make your decisions. Hence, at least for you, regular funds are not worth it.

 

[kj14]

@rski A noob question :
New to investing. Created paytm money account. Read around about MFs and started an ELSS tax savings fund.

Later heard about NFO and invested a small amount in 'NAVY NIFTY 50 INDEX FUND DIRECT - GROWTH' fund.

Now after reading this post, I am interested to know if I've choosen a distributor fund or direct fund. The name does say direct. But, looking around and reading has made me more sceptical. Could someone please share your knowledge on this.

 

[kazurk]

@kj14 If you have purchased through Paytm Money then it is a Direct fund because Paytm money only offers Direct plans.
Every Direct plan has a "Direct" writter on the Fund's name as you can see in yours.

 

[kj14]

@kazurk Thanks for the information.

 

[beaniebabie2]

@kj14 The DIRECT in the name of MF also indicates that. Otherwise would have been REGULAR.

 

[fromgenesistorevelation]

@rski Why is this ICICI Flexicap fund all the rage? Is this mostly sold to offline investors with a good push because of this 1.60% commission?

Edit: I also went through their one pager and brochure available on their website and no mention of expense ratio anywhere on them. Kind of hiding an essential info.

 

[rski]

@fromgenesistorevelation The expense won’t be visible before some time I guess

 

[pmiller]

@rski Common sense is what one needs to understand that you are right.