Today I am going to write about what I feel is the single biggest mistake a mutual fund investor can make . Again this is a feeling , I am in no way qualified to advise .
The biggest mistake is investing in a mutual fund NFO via a distributor , not a direct plan .
Now let me set out my argument . Let’s take for example the recently concluded NFO for ICICI Flexicap which set records for collection .
From what I understand , the formula for expenses for direct investors is simple
Expenses in regular plan - commission paid to distributor.
In my understanding investors who invested direct are going to end up with an expense of 0.20 % and those who invested via a distributor will have an expense of 1.60 % .
Yes the difference is going to 1.40 % per year for whatever time they are invested in .
So essentially a regular investor gives up 1.40% returns per year x number of years invested for a fund with no track record subscribed to at peak valuations .
If I had fallen into this trap I would be redeeming the next day and going direct .
Given the sheer number of NFO’s being planned I can only see that the business of shafting the poor retail investor has taken a bold new dimension .
I mean why pay 7 times more expenses for a fund with no track record at peak valuations .
In my limited and flawed understanding no fancy interface or bank or distributor is worth paying 7 x more that too for a product with no track record of returns .
The biggest mistake is investing in a mutual fund NFO via a distributor , not a direct plan .
Now let me set out my argument . Let’s take for example the recently concluded NFO for ICICI Flexicap which set records for collection .
From what I understand , the formula for expenses for direct investors is simple
Expenses in regular plan - commission paid to distributor.
In my understanding investors who invested direct are going to end up with an expense of 0.20 % and those who invested via a distributor will have an expense of 1.60 % .
Yes the difference is going to 1.40 % per year for whatever time they are invested in .
So essentially a regular investor gives up 1.40% returns per year x number of years invested for a fund with no track record subscribed to at peak valuations .
If I had fallen into this trap I would be redeeming the next day and going direct .
Given the sheer number of NFO’s being planned I can only see that the business of shafting the poor retail investor has taken a bold new dimension .
I mean why pay 7 times more expenses for a fund with no track record at peak valuations .
In my limited and flawed understanding no fancy interface or bank or distributor is worth paying 7 x more that too for a product with no track record of returns .