Invest smart in mutual funds by moving online
Oct 04 2013 , FC Research Bureau
Your fund investing experience should be as smooth and cost-effective as possible. Investors are advised to explore all available options
Much, of course, has improved over the years in terms of the ease of investing in mutual fund schemes and managing them thereafter. Internet channels provided by mutual funds including biggies such as ICICI Securities (icicidirect.com) and HDFC Securities (hdfcsecurities.com) have made life much easier for mutual fund investors. Even the two stock exchanges, National Stock Exchange of India and Bombay Stock Exchange, started new mutual fund trading segments on their platform where existing equity brokers could empanel for the new segment and offer their equity clients the ability to purchase and redeem listed mutual fund schemes.
The cost of investing, unfortunately, got expensive last year when Securities and Exchange Board of India (Sebi) buckled under AMCs’ pressure and raised expense ratios. Earlier, in August 2009, Sebi abolished the imposition of entry loads, which ranged from 0.5 per cent to 2.0 per cent across mutual fund schemes, but allowed for mutual fund agents to charge Rs 100 per transaction for investments of Rs 10,000 or more amounting to an indirect cost of 1 per cent or less depending on the investment size.
Financial Chronicle helps you maneuvre your way around the labyrinth of growing number of ways to invest and manage your investments in mutual fund schemes at the lowest cost.
Explore the new breed of agents: If cost and ease both matter to you in equal weights then some of the best choices lie in the new breed of mutual fund agents, who have come about over the past few years and most of whom operate entirely online without physical offices or franchisees. Take, for instance, the zero transactional charge attraction being dangled by one such new player, Wealth India Financial Services (WIFS), through its mutual fund transaction portal, fundsindia.com.
The zero transaction fee is for real for about 36,000 active investor-clients of WIFS. With regard to ease of investing, WIFS claims to offer as easy an operation as competitor portals with online payment linkages to banks even though they it does not offer any access via physical offices.
Co-founder and chief operating officer Srikanth Meenakshi told Financial Chronicle that WIFS writes its own program codes, which enables it to build in several bells and whistles and offer value additions as per the collective requirements of its clients.
For instance, WIFS offers flexible systematic investment plan (SIP) options, trigger-based purchase or redemptions and financial goals planning engine.
Do your due-diligence check on the new breed of online-only agents and only if you are comfortable with them, fall for their low or zero charges and flexible features they offer. Transactional charge of Rs 100 by old large-sized agents, whether offline or online, may still suit you if you feel more secure with them.
Transacting directly with the AMCs: Some AMCs have begun making it very easy for investors to transact and invest in their schemes directly through their websites using the enabling provisions of the Information Technology Act (IT Act). For instance, Quantum Mutual Fund, which otherwise too does not empanel any agents to sell its schemes, does not require any physical documentation or agreement from an investor other than her KYC registration number and an online approval of terms and conditions. The online approval serves as an electronic signature under the IT Act.
Directly investing with such AMCs will not only mean no transaction charge but also save up to 0.30 per cent by way of lower total expense ratio (TER). Sebi’s new norms last year allowed for mutual funds to charge up to 0.30 per cent more TER in a scheme if unitholders in that scheme came from beyond the top 20 cities.
Other things remaining the same: Cost and ease should drive your decision to use an online or offline agent, or an AMC, only if other things remain the same. These include electronic statement of accounts, ability to move investments to another agent, unrestricted and transparent accessibility to all types of scheme options, such as dividend payout, dividend reinvestment and growth. Within dividend options, your online portal should be able to provide you most of the important periods of dividend declaration, monthly, quarterly, semi-annually and annually.
This is important particularly if you are a small or medium-sized investor with investments ranging from Rs 10,000 to Rs 1 lakh in a year. There are some existing large-size mutual fund agents and portals that impose restrictions on such investors or charge them higher fees. Avoid such agents and portals.