Make the most of SEBI's The Securities & Exchange Board of India (SEBI) has given you a wonderful New Year's gift - an opportunity to invest in equity oriented mutual funds without paying any entry load!
But there's a catch.
To avoid paying the entry load you now have to invest directly with the Mutual Fund i.e. you have to submit the form directly to the Mutual Fund without the assistance of any agent/distributor.
Now, that's not very difficult! This new initiative from SEBI is practical and stands to benefit tens of thousands of investors!
Thank you, SEBI!
But before you celebrate, here is a word of caution.
There is a possibility you could actually lose from this development.
But first more about the one group which has definitely suffered the most because of this development.
The BIG loser - the mutual fund distributor The mutual fund distributor who meticulously filled in your application forms, submitted them, and then handed over the receipts to you, has been hit the hardest by this development. Consider this -
Let's say you invest about Rs 1,000,000 every year in equity oriented mutual funds. The load that you pay on this is Rs 22,500. This load is generally the commission that is paid to your distributor (some distributors get a lot more). So, for simply filling in application forms, submitting them, and then handing over to you the receipts, you pay him Rs 22,500! That's very generous for such a service, isn't it!
Now, with this new guideline in place, you can actually save this Rs 22,500!
No wonder distributors are not in favour of this SEBI proposal!
But, is it possible that you too could be a loser? On the face of it, SEBI's guideline benefits the investor and hits the mutual fund distributor. But, in our view, a lot of investors may not benefit, or may even lose as a result of this development….
It's being penny-wise and pound-foolish
So really the cost saved will be on account of any investment you make in the equity oriented funds; in case of the debt oriented funds there were no loads in any case. So no benefit there.
But since most investors have a blend of funds, likely to be skewed in favour of equity oriented funds, it would be correct to say that the savings would be substantial in any case.
So, you can save on the entry load. There are hundreds of equity funds in India. And more are being launched every week. And then there are the hundreds of debt funds, with many more being added every month. How do you then decide which fund is the best for you?! How do you build the mutual fund 'portfolio' that is best suited for your needs?!
Building a mutual fund portfolio is not easy
"zero entry load" guideline
Cost you incur when investing in mutual funds Via Distributor* On Your Own Equity oriented funds 2.25% 0.00% Debt oriented funds 0.00% 0.00% *Indicative Entry loads
Let's step back and understand the cost you can incur when investing in mutual funds.
(See Table alongside).
But who will guide you on where to invest?!
Yes, it is not. And we know this better than most people as we do it all the time. Yes, at Personalfn, we know what it takes to build and track mutual fund portfolios. We have a team of 6 qualified and highly experienced analysts which builds, and then tracks, mutual fund portfolios for our clients. The process is highly customised and requires tremendous effort. It is a full-time job. Take our word for it.
So, if you do not have the skill, the resources or even the time to build and track your mutual fund portfolio, don't you think you are being penny-wise and pound-foolish… just to save the entry load of 2.25% you will be risking 100% of your money!
Now, that's not being a smart investor at all.
SEBI's decision is in your interest. But you must gear yourself to benefit from it.
Here's how you can benefit from SEBI's Zero Entry Load policy
There are three options in front of you.
1. You become an expert yourself and benefit from this new guideline
This is probably the option you are already evaluating for yourself! For this to work to your advantage you need -
- the skill to select the right funds and build the best portfolio for yourself
- the resources to enable you to do that
- the time to track the portfolio's performance consistently, over the long-term
If you have all the three, then go ahead and manage your mutual fund portfolio on your own! By investing directly with the mutual funds you will save the entire entry load.
2. You "buy" honest research and still benefit by saving the 2.25% load
Do you have all the three attributes mentioned earlier that go into making you the best person to manage your own mutual fund portfolio? Be honest with yourself. After all it could impact your family's future needs and aspirations.
In our view, even though you may find the time to fill in your application forms and deposit them, what you are going to find most difficult to do is building the mutual fund portfolio best suited for you, and then, tracking it month on month till your goal is realised.
So, what's the ideal solution for you?
You need access to a service which recommends mutual fund portfolios that are best suited for your needs. And not only that, it should also offer regular reviews so that at all times you are invested in a portfolio which is right for you. There should be no obligation for you to act on the recommendations. And of course, if you do act, then you should have the freedom to invest directly with the mutual funds (and thereby save the 2.25% load).
Does such a service exist?! Yes, Personalfn offers exactly such a service - FundSelect Plus. It is a portfolio recommendation service, which will guide you as you go about planning your investments in mutual funds. As a subscriber, you will get access to six model portfolios of funds, which are customised for various risk appetites and investment horizons. It's a fee-based recommendation service and does not warrant that you transact with us. In fact you can transact directly with the mutual fund and save on the entry load!
But does FundSelect Plus, a fee-based service, really make sense for you? Will it be a case of saving Rs 22,500 (from the example used earlier), but paying a lot more for the research?
Why pay Rs 22,500 when you can get honest recommendations
on mutual funds for just Rs 7,000!
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Take a look at the table alongside.
What this table shows you is that the cost of having access to honest and credible mutual fund research is nothing compared to the entry load that you presently pay! Its just Rs 7,000 pa as compared to Rs 22,500 that you are currently paying! If your investible surpluses are higher, the savings are even greater!
Factor in the many other benefits that FundSelect Plus offers and your effective savings are compounded further.
With FundSelect Plus to guide you, its time you took control of your money and benefited from SEBI's new guideline.
More on FundSelect Plus…. Read on……
(We have a special FREE trial offer only for you! And also a price discount! For a limited period only.)
3. You employ the services of a financial planner who offers you honest recommendations and ongoing service
This option will appeal to you the most if you do not have time to plan for your future needs and invest your monies in a manner that will help you realise them. In other words the financial planner will do everything for you right from identifying and prioritising your needs to ensuring you achieve them.
This is easier said than done. Not surprisingly, there are few who offer such services.
What follows is just one among many benefits of employing the services of an honest and competent financial planner, with respect to mutual funds alone.
How to save over 200% of your original investment value
Take a look at the table below. What this table shows you is that the savings on account of lack of churning can be huge. All you need to do is get recommendations which are right for you and suited for the defined tenure. Sure, it is difficult to say with certainty whether the investments that you make today, will hold good over the next 10 - 15 years. But an honest and competent financial planner can definitely put in his best efforts (read expertise and experience) to come up with such a portfolio; for instance, at Personalfn we have rarely felt the need to churn the portfolios of our clients in the last seven years, since we started offering personalised services.
An agent on the other hand, who is worried only about his commission, will have you churn your portfolio. Every time you churn he makes money; and you lose on account of the entry load.
The savings on account of no churn over 15-Yrs for a Rs 1,000,000 portfolio can be huge… over Rs 2,000,000 i.e. 200% of the original investment value!
| Saving on Churning | ||||
| Investment Tenure (Yrs) | Churned Portfolio Value (Rs) | Recommended Portfolio Value (Rs) | Savings (Rs) | Savings as a % of Initial Value |
| 5 | 1,795,036 | 1,966,102 | 171,066 | 17.1% |
| 10 | 3,222,153 | 3,954,534 | 732,381 | 73.2% |
| 15 | 5,783,880 | 7,953,981 | 2,170,101 | 217.0% |
| Assumptions - Initial Investment - Rs 1,000,000, Portfolio is churned once a year, Entry load - 2.25%; Return - 15% pa | ||||
You have been worried about saving the 2.25% load. Assuming you have access to an honest and competent financial planner, you should be delighted that you are saving 200% of your original investment value!
Personalfn offers honest and competent personalised financial planning services for those who are looking for a one-stop solution for all their financial needs. And as far as the our charges are concerned, we leave it to you to decide. You could either pay us a one-time fixed fee for the financial plan that we draw up for you or you could transact through us that portion of the portfolio that we are capacitated to handle (the commission we earn will be our compensation). The choice is yours.
We have over 6,000 clients for our services spread across the world. It's now time for you to benefit from our expertise.
More on Personalised Services from Personalfn …. Read on……
(We are presently operating in nine cities only; but we may be able to service you
in case you live in a city where we do not have a presence)
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