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Ramalingam Kalirajan |8270 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on May 22, 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

Question by rajplayster on May 18, 2024Hindi

Dear guru, I have been investing in regular mutual funds (both lumpsum and SIP) since 2014 through an agent whose is a family friend. Recently my wife told me about the hude difference in returns between sirect and regular plans. I am grateful to the agent for getting me an XIRR of 18% on my investment but at the same time I believe I have paid him enough commission for his services. 1 have 2 questions: 1. How much will I loose if i continue with regular plans for another 5 years? 2. How do I switch to direct plans without denting his commission too much? Thank you, Anand, Delhi

Ans: Dear Anand,

Thank you for sharing your investment journey and your thoughtful questions. It's great to hear that you've been investing consistently and achieving an impressive XIRR of 18% since 2014. This shows your commitment to securing a strong financial future.

Evaluating Your Current Investment Approach
The Role of Your Agent
Your agent, who is also a family friend, has played a significant role in helping you achieve these returns. Their guidance and support have been valuable, and it's important to appreciate their contributions.

Regular vs. Direct Plans
It's true that direct plans have lower expense ratios compared to regular plans. However, the difference in returns may not always justify switching, especially when considering the value of professional advice.

Financial Impact of Staying with Regular Plans
Understanding the Cost Difference
Regular plans have a higher expense ratio because they include a commission for the agent. Direct plans, on the other hand, do not have this commission, leading to potentially higher returns.

Potential Loss Calculation
While the exact amount you'll lose by staying with regular plans for another five years depends on various factors, the difference could be around 0.5% to 1% annually in returns. However, it's crucial to weigh this against the benefits of professional advice and support from your agent.

Importance of Professional Guidance
The guidance from your agent has helped you achieve a solid 18% XIRR, which is commendable. This shows the value of having someone knowledgeable to guide your investment decisions, especially during volatile market conditions.

The Ethical Consideration
Gratitude and Respect
It's important to express gratitude and respect towards your agent, who has helped you achieve significant financial growth. Switching to direct plans might feel like bypassing someone who has been instrumental in your financial journey.

Impact on Relationship
Bypassing your agent could potentially affect your personal and professional relationship. Maintaining a good relationship with your agent is beneficial for future investment decisions and continued support.

How to Proceed
Continued Investment in Regular Plans
Continuing with regular plans ensures that you keep receiving professional advice and support. The slightly higher expense ratio can be seen as a fee for this valuable guidance.

Consider Hybrid Approach
If you still wish to explore direct plans, you could consider a hybrid approach. Invest a portion of your funds in direct plans while keeping the majority in regular plans. This way, you can experience the benefits of both approaches.

Open Communication
Discuss your concerns and thoughts with your agent. A transparent conversation can help find a mutually beneficial solution. They might even offer to help you with direct plans or reduce their commission.

Long-Term Perspective
Focus on Long-Term Goals
Your investment decisions should align with your long-term financial goals. The guidance from your agent has proven beneficial, and their continued support can help you navigate future market challenges.

Risk Management
Your agent helps in managing risks and making informed decisions. This professional support can protect your investments during market downturns and help capitalize on opportunities.

Conclusion
Switching to direct plans solely to save on expense ratios might not be the best move. The professional guidance and support you receive from your agent are valuable and have contributed to your impressive returns. Maintaining this relationship and valuing their contributions can lead to continued financial success.

Final Thoughts

Balancing financial efficiency with professional guidance is crucial. Appreciate the support from your agent and consider discussing your concerns with them to find the best path forward.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

Asked on - May 22, 2024 | Answered on May 22, 2024

Thank you Mr Ramalingam.

Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

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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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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