It is said that money saved is money made. But gone are the days when you stowed away your wealth in lockers. In the current times to beat the inflation it is important that you invest smartly and stay on top of your finances. For this reason, a large percentage of salaried individuals invest in mutual funds and are well versed with how they work Click here. But did you know that you could be smarter and savvier with investing in direct mutual fund plan? According to a regulation by SEBI 3 years ago, all mutual fund schemes are required to offer two kinds of mutual fund plans: Direct Mutual Fund plan and Regular Mutual Fund plan. Let us see what a direct mutual fund plan is and how switching to direct mutual fund can help add better returns to your investments.
What is a Direct Mutual Fund?
A direct mutual fund scheme wherein you get higher returns for your investments. This is because the expense ratio of a Regular mutual fund plan is almost three times higher than corresponding Direct mutual fund plan for the financial year 2015-16. Return of investment is calculated based on the expense ratio of Regular and Direct mutual fund plans. For instance, let us see how the expense ratio factors in:
The expense ratio is essentially the annual fee that fund houses deduct every fiscal year from the shareholder’s asset as the operational cost of scheme. This operational cost includes record keeping, taxes, legal expenses, accounting and commission fees. The commission fee paid to the distributor of the fund, is the largest expense of operational cost.
However, in a Direct mutual fund plan the commission fee is omitted and this in-turn lowers the expense ratio. And low expense ratio means higher and better returns for the investor.
Returns of a Direct Mutual Fund plan compared to a Regular Mutual Fund plan
Let us compare the expense ratios of regular and direct plans of the top performing mutual funds.
Tab 1: Difference in the returns between a regular and growth plan compounded for one and three years.
Note: All data is in CAGR as of 25-04-2016 (Raw data Source: ANSI)
Chart 1: Difference between Regular and Direct Plans return(CAGR) in last 1 year
Chart 2: Difference between Regular and Direct Plans return (CAGR) post 3 years of investment.
It is evident from the above chart that with a direct mutual fund plan, you can gain up to 1.5% of extra returns by omitting the commission. And the best part is that even if market is in downturn you keep saving this extra 1.5% commission free!
The Power Of Compounding
The appealing factor of compounding is that the return on investment itself becomes an investment and starts earning interest. This extra earning every year leads to 30% extra wealth over a period of 30 years. This is the power of compounding! Let us see this from a simple breakdown shown in the following chart.
Regular Vs Direct Mutual Fund Growth Chart
Investment Amount = 50,000 in each plan
Scheme Growth = 12 %
Savings on Commissions = 1 % extra in Direct plan
(Regular Vs. Direct)
Invested Time Span = 30 Years
Chart 3: Regular Vs. Direct Growth in 30 Years
This chart shows if you invest Rs. 50,000 in Direct Plan today you would earn ~ 1,00,000 extra at the end of 20 years and ~5,00,000 extra at the end of 30 years, saving you up to 30%. This is the range of wealth that you can create by switching to direct mutual fund plans.
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Download WealthTrust – Switch to a direct mutual fund scheme now
Despite the amount of investments, only a small population of investors invest in direct mutual funds. This can be due to two reasons: lack of awareness or management of multiple mutual funds separately. But now that you have the awareness, we have made it easy to manage multiple direct mutual funds at literally on your fingertips!
Introducing WealthTrust, India’s first zero-commission wealth management app for the modern investor. Your money and data is secure with WealthTrust App’s top notch security standards in compliance with those of leading banks. Your financial data stays in your phone and is not secured in our servers. The user friendly interface helps you manage all your accounts from single login with ease. WealthTrust App provides you paperless mode of investment and takes only seconds to switch from regular to direct plan. One of the key feature is research recommended funds i.e. the app automatically picks top fund suggestions suitable for you upon analyzing almost 4000 schemes out there.
So, let our technology take care of your investments and you can review it anytime. Unlike the conventional approach, you can now complete the formalities in no time with a few clicks as described here:
Smart Switch in Seconds
WealthTrust App lets you switch your regular scheme to direct scheme in seconds. Download the WealthTrust Mutual Fund app and save up to 30 % in 30 years.
Other Key Benefits of Zero Commission Direct Mutual Fund Plan
More often than not, distributors or brokers who assist investors in their financial planning do not promote direct plans as they thrive on the commissions they receive from the investors’ money. This can lead to mis-selling of plans. With a straight investment in a direct plan you can reap the following benefits.
- Omit the commissions to distributors from your investments and get the full return.
- Find mutual fund plans best suited for your investment goals and avoid being prey to mis-selling.
- Let the power of compounding earn you extra 30-50% returns over long term.
So switch to direct mutual funds plan now using WealthTrust App and be a smart investor.
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