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Should I switch to direct mutual fund plans for higher returns?

Ramalingam Kalirajan |8270 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Aug 28, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Asked by Anonymous - Aug 23, 2024Hindi

Hi, I'm investing in Regular MFs plans as advised by my financial planner. I read on the internet that investing in direct plans will generate more corpus than regular plans, which has a cut for the advisor. Should I change to direct plans? Thanks.

Ans: Cost Savings vs. Professional Guidance
You’re right that direct plans have lower expense ratios compared to regular plans. This is because direct plans don't include the commission paid to your advisor. While this might seem appealing, the real question is whether this cost saving justifies the absence of professional guidance.

Value of Expertise
Your Certified Financial Planner (CFP) provides you with expert advice tailored to your specific financial goals. This guidance is invaluable, especially in a complex financial market. Direct plans may save on costs, but they don't offer the personalised support that a CFP provides.

Long-Term Strategy and Adjustments
Your financial planner helps in creating a long-term investment strategy. This includes selecting the right funds, regular portfolio reviews, and rebalancing when needed. Direct plans require you to make these decisions on your own. The cost savings could be offset by potential mistakes or missed opportunities.

Stress-Free Investment Management
With regular plans, you delegate the intricate task of fund selection and monitoring to your CFP. This allows you to focus on other important aspects of your life, knowing that your investments are being managed professionally. The peace of mind that comes with this service is often worth more than the marginal cost difference.

Performance and Potential Risks
Switching to direct plans might not always lead to better performance. The small difference in expense ratios is often outweighed by the potential risks of self-managing your investments. Without expert advice, you might miss out on strategic fund choices or misjudge market conditions.

Personalised Financial Planning
Your CFP doesn’t just recommend funds; they offer a holistic approach to your financial well-being. This includes tax planning, retirement planning, and achieving specific financial goals. Direct plans lack this comprehensive service, which could be crucial in maximising your wealth over time.

Final Thoughts
While direct plans might save you some money in the short term, the value of a Certified Financial Planner’s expertise, personalised advice, and ongoing support should not be underestimated. Investing is not just about cutting costs; it’s about making informed, strategic decisions that align with your financial goals. Staying with regular plans ensures that you have a trusted professional guiding you every step of the way.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.

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Head, Rank MF - Answered on Nov 06, 2020

Question by Dr - Nov 06, 2020Hindi

Why doesn't your MF expert recommend DIRECT plans instead of Regular plans? Regular plans generally entail a commission of approximately 1% per year every year. Since he is asking the people to switch, redeem etc. he can say that go for direct plan, unless he is biased towards the agents by recommending regular plans since he is associated with a MF platform. Please ask him not to do so. Why are you recommending only REGULAR plans for all the queries even for cases where the client has DIRECT investments? Please STOP this. You are supposed to give fair and unbiased advice to clients and not biased. At least stop mentioning REGULAR option. I hope you will do this.

Ans: RankMF is research and mutual funds distribution platform of Samco Securities Limited. RankMF rates and ranks the schemes available on RankMF and therefore all our recommendations are in regular plan.

The mode -- physical or digital and the scheme option -- Regular or Direct is completely an investor's choice.

Investors opting for direct plans are well versed with investing in mutual funds and do it themselves (DIY investors) and therefore can look at the direct option of the recommended schemes.

Investors should take informed decision and if required take help of qualified professionals before investing in mutual funds.

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Head, Rank MF - Answered on Jul 23, 2020

Question by Saurabh - Jul 23, 2020Hindi

I am investing in MF via fund advisor. They have proposed me all below regular MF plan. Can you please suggest what should I do in this situation? Shall I SmartSwitch all my MF to direct plan?. Currently I have below MF in my portfolio. 1) HDFC top 100 2) L&T emerging business fund 3) Nippon India growth fund - Large Cap 4) Nippon Small Cap fund 5) Franklin India Equity Fund All above MF are in regular plan. I am looking for long term investment. Please suggest. Also suggest if all above MFs are good or need to make any changes to it.

Ans:

Name of the Fund	Category	RankMF Star Rating	Recommendation
1) HDFC top 100	Equity - Large Cap Fund	3	SmartSwitch to Uti Mastershare Unit Scheme - Growth Plan
2) L&T emerging business fund	Equity - Small Cap Fund	2	SmartSwitch to Axis ESG Fund Growth
3) Nippon India growth fund - Large Cap	Equity - Mid Cap Fund	2	SmartSwitch to DSP Mid Cap Growth
4) Nippon Small Cap fund	Equity - Small Cap Fund	1	SmartSwitch to Axis ESG Fund Growth
5) Franklin India Equity Fund	Equity - Multi Cap Fund	2	SmartSwitch to UTI Equity Fund - Growth