Benefit of #direct mutual fund #investing

From 1st of January, 2013 SEBI introduced the option of investing in the "Direct Plan" of  the existing schemes of mutual funds.( When you send your application to the fund house directly without a "broker code" or transact online without a broker code - it is called a direct investment)

Wanted to check how the "direct" schemes have fared over the "regular" schemes. Roughly for the two year period, the following difference is seen in NAV between direct and regular schemes of randomly chosen equity MF schemes.

Please note that although the percentage difference might look small,the benefit will be seen more" clearly" depending on the absolute sum of corpus invested in the schemes.Example, investor having more than 1 crore in a scheme would have saved more than 1.5 lakhs in two years.( savings till date- not looking into future savings) 

If you know to choose the right schemes ( it is not as complicated as knowing the right "stocks"), you should try and opt for direct investing in mutual fund schemes.

Fund- Growth Scheme	Regular	Direct	Diff* %
HDFC Top 200	352.025	356.157	1.17%
ICICI Pru Dynamic	188.7277	191.4078	1.42%
UTI Opportunities	49.2846	50.0483	1.55%
Franklin India Bluechip	347.7465	353.3355	1.61%
Reliance Growth	786.723	797.0294	1.31%
Sundaram Select Midcap Fund	323.8099	327.5543	1.16%
Birla Sun Life Frontline Equity	161.57	164.3	1.69%
* Difference in returns for the period 1 Jan 2013 to 16 Jan 2015
Direct schemes were introduced on 1  Jan 2013

Wishing you a successful "direct" investing.

7.5X in ten years

How my first equity (mutual fund) investment has fared?

• Almost ten years since I made my first equity mutual fund investment, the amount is now more than seven times the original investment after a lot of ups and downs. ( CAGR- 22.7%- tax free)
• This was an NFO investment and the product was "sold" to me. In recent years, I am not a fan of NFOs.
• Even if the markets fall by half now, the investment would have grown 3.5 times, which is not bad
• Key learning during last 10 years
• Direct equity investment is not easy for an individual investor . Need a lot of time, research and also luck to beat the market.
• Investing through  diversified equity fund or balanced funds with a track record ( through SIP) is one of the easier option available to retail investors.
• Dont track market news on a day to day basis.
• Have very reasonable expectations from equity market in terms of returns (inflation + 2-5%).
• Time in the market is more important than timing the market- but if you buy any asset with a high valuation ( including blue chip shares or equity MF), you may have to wait for a very long time to even  recover your capital. So, try to practice low P/E or low P/B investing which is easier said than done.
• Understanding risks involved is very important before investing in equity - Volatility, average return, standard deviation ,etc.
• Finally, Power of compounding is amazing. Experience it- to realize it :-) .
• Happy new year and happy investing!

This post is not a recommendation to buy any mutual fund.

Mutual funds - difference in dividend declaration- Regular and Direct plans

Of late, may mutual fund have declared dividends. If you have been wondering that your scheme ( direct) was treated differently from the other for dividend declaration, here's the reason.

No dividends in yourdirect plan?
Don't worry on this count, as thereare valid reasons regarding realisedgains; look at other factors, too

Investors of the HDFC Prudence Fund direct plan received a

dividend of ~1.25 a unit in March. But investors in the regular

plan of the same fund received a dividend of ~3 a unit. Similarly,

in the ICICI Prudential Tax Plan, the direct plan declared a dividend

of 1.5 per cent a unit, while the regular plan declared a dividend

of two per cent a unit.

HDFC Mid-cap Opportunities Fund declared a dividend of

~1.75 for the regular plan in February but did not declare any

dividend for the direct plan. Similarly, in January, ICICI

Prudential Discovery declared a dividend of ~2.14 for the regular

plan but none in the direct plan.

Data from Value Research says this is not a trend across

mutual funds and schemes. It is specific to some schemes. The

reason why some direct MF plans did not declare dividends or

declared less was because of a Securities and Exchange Board

of India rule that dividends can only be paid from realised

gains, says Dhirendra Kumar of Value Research.

For instance, if the net asset value increases from ~10 to ~13,

the gain is ~3. Earlier, funds used to pay a dividend out of these

gains. Sebi has now said the dividend can be paid only out of

the profits the fund makes, by selling shares and booking profits.

So, if the fund makes a profit of ~1, it can pay dividends only

out of that ~1.

Credits :- Full article on link - 

Mutual funds in DEMAT form- Should you opt for it?

If you are holding Mutual Fund Units in the physical form, which are represented by a Statement of Account, you have an option to convert the units into dematerialised form (Most of the funds provide this option) in your demat account with any Depository Participant (DP) of NSDL or CDSL. 

Once you  mutual funds which  are in demat form, you can sell them either through stock broker through the Exchange platform (BSE Star & NSE MFSS) or through the off market mode i.e by selling/redeeming it through your Depository Participant.

For Mutual funds in demat form- Redemption request can be placed through Depository Participants & Exchange platforms like NSE MFSS/ BSE STAR platform which are available for trading of Mutual Fund Units.

In case the Investor desires to redeem units through the mutual fund, the Dematerialised units have to be converted into physical form (represented by statement of account.

Benefits that are seen in holding your MF in demat form- paperless transactions and  consolidation of all your mutual funds in a single Demat account and at units can be freely transferred to the accounts of nominees or legal heirs.

MF statement of account is actually a statement that you can demand from the MF anytime and this knocks off the need for a dematerialised form and consolidation of portfolios can be done through any web portfolio tracker like moneycontrol, valueresearchonline etc

However your transaction costs increase due to holding MF in demat form like demat fee, brokerage ,etc . SWP/STP are also not straight forward options when you hold your units in demat form.

In total, there is no concrete benefit of holding MF units in demat form.

Tale of a switch request #poorcustomerservice #kotakAMC

Of late, I have been switching all my funds with various fund houses to "Direct"  mode.

I have been mailing my switch request forms through speed post and have had no hitches in getting the switch completed by the fund houses except for one.

I hold an investment in one of the equity funds of Kotak ( Thank God, it was only one). As usual , I sent a switch request form to CAMS ( investor service for Kotak).

Nothing happened for a long time and when I  got in touch with Kotak AMC , they requested me to resend the form to CAMS.

I did so, a week back and have'nt seen the switch happen. So, called up Kotak AMC an hour ago

Me: Hello Kotak AMC

KAMC : Yes sir

Me: My folio xx, need to know the status of switch request.

KAMC : Sir, No request is received yet.

Me: I sent it by speed post to CAMS and the online tracker says the letter is delivered.

KAMC : Then you should ask CAMS and not us .Please call CAMS.

Me: Is this a responsible answer ?? I will withdraw my funds from your AMC.

KAMC : Ok sir, thank you.

<<end of first call>>

Second call placed to CAMS Chennai

Me: Hello CAMS

CAMS: Yes sir

Me: My Kotak folio number is ####, Please let me know status of switch request sent by post.

CAMS: We don't have access to Kotak system, Please call Kotak.

Me: Oh they asked me to call you and you are asking me to call them#%^*

CAMS; Yes sir

Me: Can you please help me

CAMS; Call Kotak, we cant help!

I had no choice but to bang my head on the phone and disconnect. 

Wonderful service for the 2.5%charge that I have paid every year to Kotak for the last several years. !!

Mutual Fund - Direct investing - Make use of it!

"Effective 1 January, all asset management companies (AMCs) launched direct plans of all their open-ended MF schemes, a move which was made mandatory by the capital markets regulator, Securities and Exchange Board of India (Sebi), through a circular issued in September."

So, are you still investing through your broker initiated portfolios?

Is there a need to switch to "direct" schemes?

Read the detailed article here. For those who don't have the time, here's the relevant portion which states the benefit in % for direct schemes. This amount may sound trivial but may add up to a huge saving over a period of time.  Please mind the impact of capital gains tax before you do the switch. ( Also note :-you will loose out on STT for switch out from regular plan as in case of normal sale)

According to figures provided to us by Outlook Asia Capital, equity funds have shown a difference of about 0.58% on an annualized basis between the net asset values (NAVs) of direct and normal plans, as on 11 January. We have taken the annualized figures here as the total expense ratio (TER) figures of MF schemes are also annualized. Liquid funds have shown a far lower difference of about 0.05%, so far.

Continue SIPs for long-term gains

Good read on SIP.


Continue SIPs for long-term gains: Exiting them in a downturn will hurt existing investments as well


For detail news click here

Mutual fund returns

I was having a quick look at the mutual fund returns ( by category of mutual funds, as on 14th aug 2012 ) over the last 3 years / 5 years.

The sensex has fared pretty bad over both the time periods i.e 3 and 5 year time line , when compared to the average returns of various fund categories.

The following are the charts for 5 year and 3 year returns from various MF categories (source valueresearchonline ). The charts show the category average,best, worst returns over the time period.

Surprisingly gold funds turn out to be the toppers in the 5 year category. Is it the time for return reversal in gold and equity? Time only would tell.

Index Fund , Another perspective

Investing in index fund in lump sum or through SIP is considered a good option as compared to active investing. There are many index based ETFs and mutual funds in India although they are not as popular as in the west.

Index investing is popular in the west and not as much popular in India. In India, Actively managed funds have managed to give better returns excepting the recent past where the markets have been highly volatile.

Index funds are supposed to match the returns of the index and so the management cost is supposed to be low.Some actively managed funds don't even match up to the returns of index funds. So, should we all switch to index funds??

Was reading Parag Parikh's book on value investing where he states two facts with examples

1. Sectors that are 'HOT' find an easy way to the index ( like IT in 2000, Real estate in 2007,etc) and grab a decent weightage in Index during the bull phase of the sector.

2. Most of the times the stock that is replaced in an Index gives better returns than the replacing stock .( Some numeric examples are given in the book to prove it).

This is definitely a good perspective which states that index allows for inefficiencies and is not perfect.

So, should index funds be abandoned by investors? . Not really.

It is up to the investors to decide what exactly they expect their investments to do ( i.e beat the market or meet the market return).

Equity market is not a casino!

Recently, I received a query from a person

The query ~ I have withdrawn rs 50,000 from my GPF (General provident fund- provident fund for government employees), How can i double it within one or two years .

This is the attitude that most of us carry towards equity markets. It's treated like a casino which can make you rich over night. Once  you loose your money and burn your fingers , the episode of bad mouthing that equity " investing " starts.

Active vs Index (Passive) Investing

Index Investing is a passive way of investing . Having a bunch of stocks in portfolio exactly mirroring a stock in an index is a passive way of investing. This can be done by purchasing stocks mirroring an index and tracking the weight and readjusting the portfolio whenever the constituents or weightage in the index changes. Better is to buy an Index fund. This ensures that you get returns close to index.

Example if you bought an index fund of sensex when sensex was at 10,000 , it would have appreciated 70% when sensex is around 17,000. ( Returns would be exactly similar to the index minus tracking error , of a fund or an investor).

If someone believes that actively choosing stocks from the wide range of stocks available, invests in them then it is active investing.

In India most equity funds are actively managed funds. The index funds generally involves a lesser cost. Actively managed funds have managed to beat indices (on an avg.) many a times, excepting 2005-07 period.

Investing in either of the type of funds should be made by an investor after understanding the nature of products clearly.It's also not a bad idea to diversify your investments between active and passive funds.

Looking back! Investing is so simple.

When we look back at the last six months , the markets have moved from strength to strength. Experts have started predicting the upward trend for Sensex and Nifty. The same guys were extremely pessimistic six months back is another story.

Those who have been left out have started cribbing and are planning to join the band wagon now!!

On a personal note, I saw many of my friends stop investing last year and many even stopped their SIPs. This period of volatility has practically emphasised two things.

1. Do not try to time the market.

2. Be a regular investor .( what better than SIP in equity funds for regular investment).

By following this you may not get great returns but at least you can ensure that you get around 15-20% p.a ..and that too tax free ( as of now).

When investing in SIP its important to spread across the installments for a good period and stay invested for a longer period ( min 5 years), so that you can achieve this.

This is as easy as filling up a form ( Mutual fund SIP investment form -Equity fund) and do nothing for years.No need to track your stocks day by day, watch the business news channel or read a economic daily for stock tips.

This way you get to own a piece of corporate India and make all those corporates work for you!!!!

Sounds very simple isn't it? But we are used to complicating things in life more than necessary.!!

Good large cap funds to start SIP

Of late, we have been receiving a lot of queries about some good large cap funds in which SIP can be started. We recommend a few based on our experience.(investors are advised to do their own due diligence before they start investing)

1. Reliance Vision

2. HDFC Equity/ Top 200

3. Birla Sun Life Equity

4. DSP BR Equity/ Top 100

5. Kotak 30

6. Sundaram Select Focus

7. ICICI prudential Dynamic

These are some of the funds in which an investor can start his/her SIP. A longer time horizon ( say 5 years ) increases the probability of a higher return. please mail us in case you have any questions. You can also drop a comment with your choice of large cap funds.

No entry load on Mutual fund investments

Now MFs cannot charge entry load even if you make investment through a distributor.( Directive of SEBI -- news ). This is definitely a good news for investor. But there would be lesser motivation for the distributors to promote mutual fund investments.

If the investments are made through distributors or through online trading sites ( that have this facility), no entry load would be payable. But the continuation of such services by distributors or service portals without any commission needs to be seen.

This is definitely a good news for the retail investors.

Saving/ Investing early

Investment should be the first expense that we do every month. A sound investment made is going to multiply itself and work for us in the long run. So, the strategy of earn, invest and then spend should save us during the rainy days.

Financial independence can be easily achieved only if we start this habit early.On the contrary , if we get into the habit of taking loans for our lifestyle shift/wants early on and start living on EMIs , your finances may be strained in the long run.

In the article Power of postponing consumption this was illustrated with some example.

Last week I happened to bump into a person who had cultivated the habit of investing regularly during his early years. He had been investing in a fund through SIP and this was long back in 97-00 before he left to US. When he came back in 2007 ,he didn't bother even to check the money in that folio (leave aside the question of withdrawing!!). When he wanted to upgrade his car this month, he thought of checking his portfolio and decided to sell his MF units.

The market is down now and most equity fund NAVs have fallen by 30% since Jan'08. But when this guy decided to sell, he could finance his car fully by selling 70% of his units and the value of remaining units was almost 3 lakhs. He was surprised by considering the fact that he had invested only 1/10 th of the current value during the investment period.

This awesome performance of equity may or may not get repeated in future again.But it is definitely worth investing and reaping the benefits manifold rather than just thriving on EMIs.

This guy got a car ( worth almost 7 Lakhs) out of just 70,000 which he invested a decade ago and left with some good money too!!On the contrary lets look at a person who buys a car on EMI. he pays almost 15% as interest. By making money work for you ..you tend to gain in the long run. But this rquires tremendous patience and a systematic approach.

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Astrology, Economics and Stock Analysis

When there was a proposal a couple of years ago to include astrology as a mainstream course of study in universities, there were big hues and cries about it. Many questioned the rationality behind astrology and ridiculed that future prediction was just a cheating game.

But when top notch schools churn out economists and analyst ( thanks to RATIONALE study on macro economic, micro economics, technical and fundamental analysis!), we welcome them into the corporate world with a big heart.

They also start doing this prediction job, When oil moves up they predict it to go up and when it starts falling , they try to reason it out too. When sensex is at 21,000, they say that it will reach 27,000. But when it hits 13000, they start talking about 8500. They keep changing their stance each and every day and try to support their stance with a strong fundamental logic (????!!@#). Some of them may be doing this for their personal gain by operating in the futures market based on their stance. We never question these people or no one has ever tried to fix a accountability for them. But we keep hailing the schools that keep churning out these intellectual graduates and we cry for more of such institutes. Not that I am trying to support education on astrology in schools but trying to question our rationality 'on the stance of maintaining rationality' in education.

You may ask, why this article on a personal finance blog. The answer is quite simple. Don't follow these experts blindly but follow a simple and regular investment plan like SIP to make money in the long run.( Hope this works!!! :-) )

How to make your SIP direct -(Investing DIRECT in MF)

For those who are on a SIP made through a MF agent, you will be paying the entry load on your investment.

There are two ways to convert your investments into DIRECT investment.

1) Drop a letter to your AMC stating that you want to convert your broker code to DIRECT.

2) Stop the existing SIPs and start afresh investments directly.

When I read articles on difficulties in direct investment, they talk about difficulties in filling up forms, visiting AMC s, standing on queue ,etc.

If you have go through the instructions in the application form , there is little chance that you will make a mistake. If you find it difficult visiting the AMC, courier the form to your nearest AMC office. One time courier charge is better than the entry load. Always mention your email id along with the investments, so that queries can be sorted out on mails easily.

Don't forget to mention DIRECT in the broker code space on the application form.

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Comment on investing

Recently there were a lot of comments from other blogs. They all talked about how the investors (??) have lost money lost in the market in the recent past.

These were a sort of advertising comments having links to the respective blogs.The comments were not published not because of this reason, but all along they did talk about traders as investors.

If one does trading and calls it an investing, its like calling an engineer ..a doctor...!!. If someone is buying and selling stocks just for a price increase/ decrease that he expects in a short term ( period of one day to a couple of years), he is a trader.

The best way to create wealth is to stay invested in the market for a longer time horizon. Mutuals funds are the best way as most of us are not experts in picking up stocks.

1) Never get swayed by any articles/comments which calls trading as investing.

2) Believe in long term investing in equity through SIP route in proven diversified MF.

Planning to SIP??

No one is talking about markets and investments these days , as they used to talk a couple of months ago. Conversations on Stock/ MF , Browsing of Investment sites/blogs, Display/ reading of investment mags. are not a great trend now as it was sometime ago.

The Fad seems to be gone. For one who is seriously looking at creating wealth for the long term, equity markets are a great place to invest now. Not that the worst is over yet. But investors who invest during tough times and are patient ( 5 years and above) will reap great benefits during the boom cycle that follows.

If you have the right investment spirit , this should be the best time for you to start an SIP in a diversified mutual fund ( having a long term investment view). If you are already sipping it out, you continue to be on the right path of wealth creation

What a change!!

It was not long ago that we were all in a euphoria thinking that the sensex is never going to slip. Many new investors rushed to invest their money in big IPOs and new demat accounts opened. Experts opined that this was the best time to invest in Indian economy.

FIIs started moving out and the golden IPOs have to come to earth. Now there is a downward journey of sensex.

What a Change in span of 15 days. Experts predict more downside !!!

The best way to reap the benefits (from Equity) would be to do long term investing (>5 years). Passive investing through SIPs would help us overcome all these blues.