Mutual Funds: How much you can earn by investing in direct mutual funds - Here is what experts suggest
Mutual Funds: A direct mutual fund doesn't provide portfolio manager while in regular mutual funds there are portfolio managers.
Mutual Fund Helpline: Direct mutual funds are becoming popular among the Indian millennials because, at the time of investment, it allows an investor to save the brokerage and expense ratio payment that results in higher NAV. According to the tax and investment experts, if we add the compounding income the higher NAVs that one gets after investing in direct mutual funds instead of regular mutual funds, the final returns can be to the tune of 1 per cent to 1.25 per cent more.
Speaking on the savings in direct mutual funds at the time of investment Mumbai-based expert Prakash Ranjan Sinha said, "Due to upfront and trail brokerage payout the difference in expense ratio on an average can be between 1 per cent to 2 per cent. This can translate on compounding basis difference in return on 2 per cent to 3 per cent in 5-7 year period. If the investment horizon is longer it can translate into much more difference. If every year 1 per cent to 1.25 per cent is saved its compounding effect will add on in return in the long term."
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On what kind of investors can invest in direct mutual funds Sinha said, "Direct mutual fund is suitable for those investors who have enough knowledge on the whole investment process. One who has enough time to monitor scheme performance on regular basis, who knows how to interpret economic and market risks and its impact on his fund real return and one who can rebalance to mitigate asset risk to avoid real loss can go for the direct mutual fund. So you need to have time and also free from all behavioural biases and if anyone can do this diligently then go for direct mutual fund investment."
On risk involved in direct mutual fund investment instead of regular mutual funds Kartik Jhaveri, Manager — Wealth Management at Transcend Consultants said, "A direct mutual fund doesn't provide portfolio manager while in regular mutual funds there are portfolio managers. So, one who can take his or her investment-related decision on its own should go for the direct mutual funds otherwise one should go with the regular mutual funds."