fund business is apparent from a
multitude of distribution channels
that exist today. While players like
Scripbox and Sqrrl offer regular
plans to first-time investors beyond
the top 15 cities of India, other
players like Clearfunds, Unovest
and Investza offer direct plans to
investors on their platforms but
charge them an advisory fee. These
platforms are currently catering
largely to HNIs. But they are giving
the existing distributors the jitters.
Making this more interesting are
advertisements by players like UTI
AMC, inviting investors to invest
directly through their website.
So the question to ask is what
is the best way to invest in mutual
fund schemes?
Affluent investors, who are
better informed, are now investing
in direct plans offered by all mutual
funds. Even if they are opting
to go through the distributors,
they are unwilling to pay a higher
commission. So they are paying for
advisory but choosing direct plans,
which have lower charges. Explains
Sundeep Sikka, Executive Director
and CEO of Reliance Nippon Life
Asset Management, “The market
is going to evolve. Right now, 2
per cent of India invests in mutual
funds. It is important to understand
that multiple distribution models
will exist.” But is direct investing for
all investors? The answer is a clear
no, even if retail investors prefer
to invest digitally and not through
the neighbourhood distributor.
Investors need to have knowledge
and equanimity. “A third party
might be required to moderate the
bias and take dispassionate calls
basis your needs. They can help
you avoid the cycle of greed and
fear,” points out Suraj Kaeley, group
president, sales and marketing, UTI
AMC, adding that his company is
agnostic to regular and direct plans.
A key issue facing the asset
management business is the deficit
Going Direct:
Understand the Pros and Cons
Direct Plans in Mutual Funds
Advantages
Disadvantages
Direct plans come with significantly lower
charges, which impacts returns positively
over the long-term. Expense ratios of direct
schemes can be as low as 70 basis points
compared to up to 2.5% in regular plans.
Investors can invest online through AMCs or
online platforms that sell direct plans Investors have to invest time and
effort to understand performance of
funds and identify the ones that will
help them achieve their long-term
financial goals. Choosing a wrong
fund can erode returns and set back
wealth creation plan
High networth individuals can bring down
costs, while savvy retail investors can elimi-
nate distributor bias by investing directly.
Regular plans with higher commissions are
hawked by some unethical distributors.
There is no such issue in direct plans Blindly relying on two-three year
ratings can be dangerous. True
performance of a fund should be
assessed over 10-15 years. Reviews
on the internet could lead to faulty
investment decisions
Investors have complete control over their
investment decisions – distributors cannot
deceive them into churning portfolios often.
Data shows returns are much higher even
for small ticket investments in direct plans No third party to provide dispassion-
ate counselling in times of market
crises, which could lead to investors
exiting at a time when they need to
stay invested in the market
Online Insurance Policies
Advantages
Disadvantages
Lower charges – since agents are not
involved, no trail commission is to be paid.
Insurers are fast responding to customer
feedback and coming up with products
that are more relevant to customers Low charges come with a cost. Insur-
ance buyers need to compare all the
plans and features themselves while
computing the ideal life cover and
identifying best-suited product
Fewer chances of mis-selling, since all the
information is available on the website and
online proposal form. Comparison is easier
with a lot of information available online No handholding by agents to under-
stand complex insurance jargon, fill up
cumbersome proposal forms and file
claims after sales
Better transparency, convenience and
quicker policy processing and issuance Not suited for insurance seekers who
are not tech-savvy
of trust. Explains Ashok Kumar,
CEO and co-founder of online
investment services provider
Scripbox: “Nobody wants to talk
to a human being to get things
done today. This is a big shift that
has happened because of a trust
deficit among investors, as they
believe there is a commission and
manufacturer bias in distr ibutors
today. Also, today you cannot push
people to do things. Over time, too
much of mis-selling has happened.
Also, people like to self-discover.”
A lot of first-time investors are
comfortable investing through
online platforms like FundsIndia,
Scripbox and Sqrrl—even if they
offer regular plans that charge
higher commissions—because they
don’t trust their banks or mutual
fund distributors.
Some asset management
companies claim that they are
building a direct channel because
they wish to cut the clout of large
distributors who often hold the
AMC to ransom because of the
sheer volume of business they bring.
Distributors, on the other hand,
claim that the asset management
companies have not always played
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