‘Switching to direct plans was easy’
Financial analyst Aasim Bharde expects to save a bundle from investing in mutual funds without an agent. Savings will be gradual, but he expects a huge difference over the long term.
The Securities and Exchange Board of India in the middle of last year ordered fund houses to give investors the option of investing in mutual funds without the help of an agent. At the start of this year, nearly all mutual funds opened direct counterparts of their schemes. Switching to these plans could save you up to 0.5% per year in agents’ commission costs. Negligible at first glance, this small percentage could mean big bucks over the years, particularly after factoring in the power of compounding. Yet, how many of us have made the switch? Mumbai-based 27-year-old financial analyst Aasim Bharde has made the switch and tells us that the process is so ridiculously simple that it should not be ignored by anyone with knowledge of their own investments.
Aasim advises the switch because there simply isn’t any reason not to if you choose your investments yourself. He says, ‘It takes just a few hours to change all your mutual fund investments to a direct plan, so there’s no reason not to switch. In my opinion, only those who actually depend on agents for financial advice should stick to their original plan. If, on the other hand, you find yourself making the decisions yourself and reviewing fund performance regularly, both of which are recommended, it’s best you switch. Even though on paper the difference is only a matter of 0.5%, but over the years when compounding interest comes into play, there is a significant difference in amounts that you will earn.’
The process of switching is easy, says Aasim, who switched four of his mutual fund investments in a day. He says, ‘I have portfolios with DSP Blackrock, BNP Paribas, HDFC and IDFC. Currently, IDFC has no online option. So what I did was look up the switch request application of each of the other four fund houses online. The forms simply ask you the details of your original plan, such as the folio number and some authorisation details. It’s no hassle at all. You then submit the form right back to them online itself. What then happens is that your units in the normal plan are sold and, with the proceeds, units are purchased in the direct plan.’
Don’t be put off by the paltry savings early on. The savings will be gradual and become very noticeable over the long term. Aasim says, ‘Besides, even the minor process of switching will only have to be undertaken once. The next time, you’ll be investing your money in the direct plan from the get go, so it’s not as if you have to go through the switching process again.’ In the following table, Aasim has calculated what his savings will likely be if he invests Rs20,000 each month over the next 30 years and expects a modest return of 10%.
|Option||Over one year||10 years||20 years||30 years|
So there you have it. A small figure like Rs692 could swell to a whopping Rs51 lakh over 30 years if you switch to the direct plan. But Aasim says that going direct will necessitate active participation in your portfolio. He says, ‘If you do not have the time or believe that your advisors and brokers are much better at identifying these factors and will help you rake in extra returns in the long run, it’s best not to switch to a direct plan.”