Many times people who meet on different occasions ask me showing their existing mutual fund investments if they have made the right fund selection. I ask them who is their advisor/distributor for which the common answer is they have invested opting for the “direct plan” without any advisor or distributor’s intervention. I refuse to provide any feedback or suggestions to such people because they have opted to go direct and why do they need a third person’s opinion? Because I offer my expertise free-of-cost?

Buying medicine directly from a medical shop by avoiding a doctor (which avoids paying the consultation fee too) is a common practice among people; the consultation fee charged by the doctor is considered a “big” expense.

In mutual funds investing too the above-mentioned example is true; there has been an option introduced by SEBI that facilitates investors to choose between “direct plans” and “regular plans” wherein if you choose to invest in an equity fund through a direct plan your expenses on the scheme would be lesser by about 0.75% while the regular plans will have a cost that’s paid to the advisor through whom the investment has been made. For example, if the regular plan expense ratio is 2.00% for an equity fund, the same would be about 1.25% under the direct plan. Of course, a direct plan offers a better return on investment due to its reduced expenses.

But, should you choose a direct plan instead of a regular plan? Let’s see the vagaries her; with a medical shop, you could probably buy basic medicines for day- to-day problems such as headache, stomach upset, back sprain and the likes but can you depend on a B-Pharmacy qualified chemist to advise you if you have dengue, malaria or diarrhoea or other bigger ailments surpassing an MBBS qualified doctor’s advice? I guess not.

Investing in mutual funds should be with defined objectives and financial goals, also you should be able to identify the difference between hybrid, large cap, multi-cap, flexi-cap, mid cap, small cap, value, focused, thematic and sectoral funds which surely requires the assistance of a qualified advisor/distributor. If the schemes have been named such as “Discovery,” “Tiger,” “Prima,” “Vision” and so on would you be able to understand the philosophy of the fund and if they suit your risk profile? Do you know how much corpus you would need for your retirement? How much inflation percentage should be considered? How much future interest rate should be factored in for retirement? How to spread your exposure to different categories of mutual funds? You might actually need Rs.2 crore as your retirement corpus but you invested on your own and created just Rs.1.50 crore; how would you rectify this mistake at that time?

Unless you yourself are knowledgeable about mutual funds as an investing proposition and you are able to make your own financial plan avoid choosing direct plans; in the long run, the 0.75% you saved today could prove to be your costliest

Conclusion. Seek an advisor’s assistance and let the advisor get paid through the NAV itself. Demand the service you want. It is better not to be penny wise and pound foolish