HOW TO BE POOR. LESSON 6: MAKE OTHERS RICH
The mutual fund industry is full of myths; some which even the experienced mutual fund investor can’t escape from. The most common is the issue of commissions.
A relatively less known fact is that every Mutual Fund scheme has two distinct avatars — REGULAR & DIRECT.
An investor who invests via any intermediary (an online banking or trading platform, an agent or an advisor) is automatically assigned the Regular Avatar; and an investor who invests directly with the fund house is assigned the Direct Avatar.
While the two investors invest in the exact same fund, their returns are different.
The difference is because of expenses. Every fund pays a commission (0.6% — 1.5% in the case of Equity Funds) to an intermediary (your advisor) for getting them business, and this gets factored into the price of a fund purchased through the regular route.
Given that a fund house doesn’t have to pay a commission to a direct investor, these costs don’t get factored in.
Many investors believe that commission is a one-time affair and it’s only fair that their advisor earns a small sum for providing them investment services. Unfortunately, investors don’t realize that one pays commissions throughout the life of the investment.
If one were to look at the impact of commissions over long periods of time, the difference becomes too large to ignore.
You could invest in the same fund as someone else, and still make more money!
Because you didn’t pay any commission.
Buy Direct plans of Mutual Funds through Bharosa and pay zero commissions.
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