1. Net Asset Value (NAV) = (Market Fair Value (MFV) of scheme investments + receivables + accrued income + other assets - accrued expenses – payables - other liabilities) / no. of outstanding units.
2. All of the above components are calculated on a daily basis.
3. The relevant item under discussion here is "accrued expenses", "payables" and "other liabilities" which together form the expense ratio.
4. From 1st Jan 2013, the regulator asked fund companies to create special direct plans in which the commission that would otherwise have been paid to intermediaries goes to the fund's NAV, and thus to the investors.
5.. A direct plan, therefore, has a lower expense ratio since it does not include payments to distributors in the form of commissions made in a regular plan.
6. The degree of outperformance is higher among equity funds than debt funds, and is a function of the brokerage, which varies across fund categories.
7. Liquid and debt funds offer less commission compared with equity funds, hence the difference is not so significant among direct and regular funds.
8. Also, it is not compulsory for a fund house to pay the same commission on all schemes within a category, viz. the tax-saving funds have a higher commission structure.
9. What goes for direct plans is the reward of lower expenses resulting in higher returns for investors, which over a long period, does tend to accumulate.
10. Whether you should go for direct plans depends entirely on what services the intermediaries offer you and whether you can substitute them yourself.
11. In practice, the expenses may be numerous like operating expenses, management expenses, distribution and marketing expenses, transfer agent fees, custodian fees, audit fees, etc. which are all included.
12. The difference between regular and direct plans lies in the distribution and marketing expenses, as directed by the regulator, all else remaining the same.
13. While any investor would prefer to maximize value of his funds through the direct option, he should individually decide whether this difference is large enough to forego the services of his intermediary for the tenure of his investment in that fund.
14. After all, investing through direct plans makes sense when investors are certain that going through an intermediary offers no value.
15. Ideally, an intermediary should be helping an investor with investment advice along with procedural help which should be worth the extra commission.
16. Existing regular plan investors, tempted to move to direct plans, need to tread with caution, because there are switching costs and capital gains involved if they decide to make the move, in addition to being confident of their Do-It-Yourself abilities.
17. Switching to direct equity plans works best if they are planning to stay invested for long-term and after minimizing capital gains taxes.
18. Switching to direct plans in any non-equity fund isn't worthwhile, as the tax-incidence is very high compared to the benefit, and starting fresh investments in their direct plans is better.
19. At the end of the day, direct plans are a compromise on convenience to some extent as an investor would need to spend time and effort in selecting the most suitable fund, tracking their performance, and executing transactions, besides their paperwork.
20. But for savvy investors, who can spend time and energy and manage these on their own, direct plans are better.
2. All of the above components are calculated on a daily basis.
3. The relevant item under discussion here is "accrued expenses", "payables" and "other liabilities" which together form the expense ratio.
4. From 1st Jan 2013, the regulator asked fund companies to create special direct plans in which the commission that would otherwise have been paid to intermediaries goes to the fund's NAV, and thus to the investors.
5.. A direct plan, therefore, has a lower expense ratio since it does not include payments to distributors in the form of commissions made in a regular plan.
6. The degree of outperformance is higher among equity funds than debt funds, and is a function of the brokerage, which varies across fund categories.
7. Liquid and debt funds offer less commission compared with equity funds, hence the difference is not so significant among direct and regular funds.
8. Also, it is not compulsory for a fund house to pay the same commission on all schemes within a category, viz. the tax-saving funds have a higher commission structure.
9. What goes for direct plans is the reward of lower expenses resulting in higher returns for investors, which over a long period, does tend to accumulate.
10. Whether you should go for direct plans depends entirely on what services the intermediaries offer you and whether you can substitute them yourself.
11. In practice, the expenses may be numerous like operating expenses, management expenses, distribution and marketing expenses, transfer agent fees, custodian fees, audit fees, etc. which are all included.
12. The difference between regular and direct plans lies in the distribution and marketing expenses, as directed by the regulator, all else remaining the same.
13. While any investor would prefer to maximize value of his funds through the direct option, he should individually decide whether this difference is large enough to forego the services of his intermediary for the tenure of his investment in that fund.
14. After all, investing through direct plans makes sense when investors are certain that going through an intermediary offers no value.
15. Ideally, an intermediary should be helping an investor with investment advice along with procedural help which should be worth the extra commission.
16. Existing regular plan investors, tempted to move to direct plans, need to tread with caution, because there are switching costs and capital gains involved if they decide to make the move, in addition to being confident of their Do-It-Yourself abilities.
17. Switching to direct equity plans works best if they are planning to stay invested for long-term and after minimizing capital gains taxes.
18. Switching to direct plans in any non-equity fund isn't worthwhile, as the tax-incidence is very high compared to the benefit, and starting fresh investments in their direct plans is better.
19. At the end of the day, direct plans are a compromise on convenience to some extent as an investor would need to spend time and effort in selecting the most suitable fund, tracking their performance, and executing transactions, besides their paperwork.
20. But for savvy investors, who can spend time and energy and manage these on their own, direct plans are better.