Do you invest in Mutual funds?
Nope.
Yes - Direct Only
Yes - Regular funds via a platform/advisor
Yes - Combination of regular and Direct
I've been wanting to do this comparison for awhile - direct vs regular mutual funds. It's been a much discussed topic both online and offline, but I wanted to test the data myself to publish the results
Back in 2014, I decided to convert all my mutual fund investments from regular to direct. Why? Well, simply because I didn't have a mutual fund advisor who was actively giving me tips on where to invest. I really did not do any computation before making this change. It was driven more by a feeling of not wanting to pay a single rupee to a platform which all but ignored me but still made money of my transactions. (Yes, HDFC Bank and ICICI direct - I am talking about you folks in 2014!)
Of course, I understand that there are some people who have advisors that they trust and rely on for their expertise. And if you invest through them (or their platform), that's totally okay too. After all, they're providing you with a valuable service and they need to make a living as well!
Now, before I continue, let's take a step back and define what direct mutual fund investment actually means. Simply put, it's when you invest directly with the mutual fund house without any intermediaries in between. You can do this through the AMC's website or through some platforms like Coin, MFCentral, and Groww. Platforms like HDFC securities, ICICI securities, HDFC Bank, ICICI Bank, Kotak Bank are mutual fund distributors, so they get paid based on commissions which is why they sell you "regular" MF investments
Make sure you read the fine print before investing via any platform to check if you are investing in the Direct Variant or the Regular Variant. One thing I noticed when I did my research this time around. Most MF houses have removed the word "regular", making it difficult for you and me to figure out where our money is going. For e.g. Nippon Arbitrage fund has now two options (well they have more than two, but these two are the ones you need to watch for) - "Growth Plan - Growth Option" and "Direct Growth Plan - Growth Option". So ensure the plan you choose has the word "Direct" in it even via the MF House.
That being said, let's dive into the first part of this two-part blog series. In this blog, I want to share with you some insights on returns from lump sum investments in three different funds - a liquid fund and an arbitrage fund. These funds are typically used to park funds in lump sum rather than stashing in a fixed deposit. For more on that refer my earlier blog on where to stash funds for 91 days.
I used Nippon AMC's liquid and artbitrage fund NAVs to do my analysis, and assumed a INR 5Lac lumpsum investment on 1st December 2022, with returns being evaluated on 31st January 2023
Nippon Liquid Fund | Direct | Regular | Comments |
investment on 1.12.2022 | INR 5,00,000 | INR 5,00,000 | |
Value on 31.1.2023 | INR 5.05,364 | INR 505,246 | Direct returns was 2.3% more |
Returns - Absolute | 1.09% | 1.06% | |
Returns - XIRR | 6.6% | 6.4% | |
| | | |
Nippon Arbitrage fund | Direct | Regular | Comments |
investment on 1.12.2022 | INR 5,00,000 | INR 5,00,000 | |
Value on 31.1.2023 | INR 5,05,686 | INR 5,04,928 | Direct returns was 15.4% more |
Returns - Absolute | 1.15% | 1.00% | |
Returns - XIRR | 7% | 6% | |
The above numbers speak for themselves, but the delta in direct for arbitrage funds stunned me. I checked the same out with Invesco's arbitrage funds where i saw XIRR was 7.9% and 7.2% respectively but the direct returns (absolute) was 9.7% more. I know the absolute number looks small, but even in our example above that is at lease one good Zomato mel for 2-3 people!!!
More to come - the impact I suspect will be higher when I do the SIP analysis over 5-10 years!
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