1. Trail Commissions are calculated on a daily basis as a percentage of the assets under management of the distributor and payable monthly.
2. Since these are calculated on net assets, distributors are benefited from a) rise in his assets in the form of higher NAV of funds or b) sale of more units.
3. Also, these are paid out of the expense ratio which is deducted on a daily basis.
4. An investor doesn’t need to worry about trail commission because these are factored in the expense ratio which is explicitly stated by all funds, and are not any hidden cost affecting your NAV.
5. A mutual fund distributor is paid commission as long as investor’s money is held in the fund.
6. From 1st Jan 2013, Sebi asked fund houses to create 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.
7. A direct plan, therefore, has a lower expense ratio as it does not include payments to distributors in the form of commissions made in a regular plan.
8. The degree of out-performance is higher among equity funds than debt funds, which varies across fund categories.
9. The reward of lower expenses results 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. While any investor would prefer to maximize value of his funds through the direct option, you should individually decide whether this difference is large enough to forego the services of your intermediary for the tenure of your investment in that fund.
12. Investing through direct plans makes sense when you are certain that going through an intermediary offers no value.
13. Ideally, an intermediary should be helping you with investment advice along with procedural help which should be worth the extra commission.
14. Existing regular plan investors, tempted to move to direct plans, need to know that 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.
15. Switching to direct equity plans works best if you are planning to stay invested for long-term and after minimizing capital gains taxes.
16. 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.
17. At the end of the day, direct plans are a compromise on convenience to some extent, as you would need to spend time and effort in selecting the most suitable fund, tracking their performance, and executing transactions, besides their paperwork.
18. But for savvy investors, who can spend time and energy and manage these on their own, direct plans are better, as the saved expenses keep compounding too.
2. Since these are calculated on net assets, distributors are benefited from a) rise in his assets in the form of higher NAV of funds or b) sale of more units.
3. Also, these are paid out of the expense ratio which is deducted on a daily basis.
4. An investor doesn’t need to worry about trail commission because these are factored in the expense ratio which is explicitly stated by all funds, and are not any hidden cost affecting your NAV.
5. A mutual fund distributor is paid commission as long as investor’s money is held in the fund.
6. From 1st Jan 2013, Sebi asked fund houses to create 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.
7. A direct plan, therefore, has a lower expense ratio as it does not include payments to distributors in the form of commissions made in a regular plan.
8. The degree of out-performance is higher among equity funds than debt funds, which varies across fund categories.
9. The reward of lower expenses results 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. While any investor would prefer to maximize value of his funds through the direct option, you should individually decide whether this difference is large enough to forego the services of your intermediary for the tenure of your investment in that fund.
12. Investing through direct plans makes sense when you are certain that going through an intermediary offers no value.
13. Ideally, an intermediary should be helping you with investment advice along with procedural help which should be worth the extra commission.
14. Existing regular plan investors, tempted to move to direct plans, need to know that 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.
15. Switching to direct equity plans works best if you are planning to stay invested for long-term and after minimizing capital gains taxes.
16. 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.
17. At the end of the day, direct plans are a compromise on convenience to some extent, as you would need to spend time and effort in selecting the most suitable fund, tracking their performance, and executing transactions, besides their paperwork.
18. But for savvy investors, who can spend time and energy and manage these on their own, direct plans are better, as the saved expenses keep compounding too.