Which website should you use to invest in Direct mutual funds?

Priya wrote in asking:

MF utilities; I feel it is not at all user-friendly. What would you say about paytmmoney and Wealthtrust websites? Are they trustworthy?

She’s right. The interface for MFU online in terrible.

But, simply from the fact that MFUtilities is run by the consortium of mutual fund AMCs in India, you could say that that is the most trustworthy platform out there. The rest are run by third parties.

I’ve personally not used paytmmoney and Wealthtrust. And even though there are plenty of other direct fund platforms, I don’t use any of them. Not because I don’t trust them, but because I’ve already found what works better for me.

I invest directly using the AMC’s website. This is what I recommend the most for a couple of reasons.

Third party direct fund platforms are still figuring out how to stay in business.

Platforms like SCRIPBOX eat your money on the side in commissions, but direct fund platforms don’t have that luxury. So the question is, how do they plan to stay afloat in the long term? Several such platforms are still figuring out their revenue streams. Some of them end up putting restrictions here and there and ask users to pay up to avoid those restrictions. I personally don’t like the ambiguity. Especially since using the AMC’s website enforces no such restrictions and will most likely always be free.

Sometimes, direct fund platforms list funds which they don’t service.

I’ve personally faced this issue with MFUtilities. The portal was showing a liquid MF which wasn’t being serviced. Even several days after transferring the amount, units weren’t allocated. I eventually had to call their service line and wait another 3 days to get a refund. It was a large sum and I ended up losing interest on it for more than a week.

You’ll need to create logins for only a handful of AMC websites anyway.

I don’t find having logins on multiple websites tedious. Especially since the service is free and comes with no-strings-attached. There are no restrictions. And being run by the AMCs themselves, they’re far more reliable. You can set up SIPs, STPs, do lumpsum investments; whatever floats your boat.

if you are a beginner, you can make do with just 2 logins. Even once you’ve become a veteran, my guess is you’ll not need to create more than 5 logins.

It’s easy to track all your MF investments in one single place.

Services like CAMS and Karvy can provide you with a consolidated mutual fund report, irrespective of the mode you used for the investment. So despite investing using multiple AMC websites, as long as you’ve used the same email ID everywhere, you’ll be able to track all your investments conveniently in one single place, So the chances of you forgetting your investments are rather low.

So, my recommendation to Priya would be to finalize a good fund, and directly create a login on the fund’s website. Its worked well for me, and I don’t see why it won’t work for anyone else.

Happy Moneyplanting!

Vinod

5 Things About Money Which Many Will Realize Too Late

If I were allowed to tell you only 5 things about money, here’s what they’d be.

Being able to invest money well, is a life-altering skill. And yet, very few will ever learn it.

Knowing how to grow and protect money in a stress-free manner, is as liberating a skill as knowing how to use a computer or drive a car. It creates a new set of life choices at every step of your life. It can allow you to retire early, comfortably take several years off work to master a brand new skill, work on a life project, improve your health, or allow you to spend more time doing the things that truly bring you joy.

To see the difference which just one well-calculated investing decision can make, have a look at the graphic in this post here.

The impact of several years of good investing, is simply incalculable.

And yet, many will never learn the skill well, despite being fairly aware of its impact. The fear and the inertia towards understanding finances better, will always remain a widespread psychological phenomena of sorts.

No one will take care of your money as well as you would.

  • More than 98% of financial advisors in India are commission agents.
  • In FY 2018 alone, mutual fund middlemen made an incredible 8500 crores as commissions.
  • The highest selling life insurance products in India have agent commissions as high as 35%.

All of this means, that the chances of you encountering someone who you could fully trust with your money, are rather low. The lure of commissions is strong, and ulterior motives kick in sooner or later. I know several advisors who provided good recommendations at the start, but then resorted to suggesting NFOs or expensive PMSs to their clients; both products which most investors can comfortably avoid. SEBI has gone to the extent of warning mutual funds, about excessive distributor commissions.

The entire financial system is designed in a way that it allows the financially educated minds to bypass these commissions with ease. But since that is a very small group, a majority of individuals will lose lakhs and crores by the time they retire, and only a portion of them will even realize that they have. The only way out, is to learn the field yourself. No one will take care of your money as well as you would. Period.

‘Growing money’ and ‘Saving money’ are two vastly different things.

Most of us in India have been taught rather well on the ways to save money. We are a nation of savers. Consequently, most intrinsically believe that creating wealth for future means cutting corners and saving as much of income as possible. So even if they invest their money, they invest in places which guarantee to keep it safe.

But this is a terrible approach to accumulating wealth, and is a ‘poor’ man’s idea of wealth creation.

Accumulating wealth is truly not about saving as much of it as possible, but about growing as much of it as possible.

The quantum of knowledge required to generate wealth in a safe and stress-free manner, is shockingly low.

But this crucial knowledge tends to get drowned in a sea of noise, and is scattered beyond belief. The only way for you to be able isolate this core knowledge, is by first learning how to identify and ignore the noise. A lot of what you’ll read and see on a day-to-day basis is completely useless and is mostly there to fill TV air time and news paper sections.

Once you’re past learning the fundamentals well, all matters of money become second nature. You’ll be able to see through the fog and succeed effortlessly by focussing on a few core, shockingly simple principles. It is again, like learning how to drive a car. It seems daunting at first. But with enough practice, it becomes muscle memory, at which stage, you need a very tiny portion of the mental resources you needed earlier.

After a tipping point, any additional wealth will fail to bring an equivalent, additional happiness.

There is a reason why study after study shows that several rich, self-made individuals, continue to live surprisingly simple lives despite their wealth. This does not mean that they live poorly. It just means that they seem to be content with what they already own, and aren’t in the race to accumulate incrementally better things year after year.

And there’s a reason for this. Once you’ve reached a state of financial security, and know how to create more wealth, you tend to intrinsically lean towards things which are far more rewarding than the temporary joys derived from accumulating things. One tends to get involved in activities like investing more time and effort in their families, teaching, arts, learning new skills, helping local communities, and charity.

At this stage, any incremental wealth fails to bring an equivalent, incremental happiness. Because by then, one has already learnt to derive happiness from the things which either cost very little or nothing.

 

Those there were the five things which many will realize too late. You’re now free to click away and wander the depths of the internet.

However, if any of this has inspired you to take your first steps towards understanding money better, there are two ways you could get started.

1. You could read a good book on finances

I sympathize with you if you aren’t a book reader. But there’s simply no way around it for now. Because the devil is in the details. You cannot gather the core knowledge by watching a Youtube video once a while, or reading an article here and there. Imagine how long you’d take to learn how to drive a car, if you learnt how to operate the brake one month, the clutch another month and so on. It just doesn’t work.

You’re free to start with any good book. Though I do suggest ‘Grownups Are Just Kids With Money’ for two very critical reasons.

  1. I’ve been reading resources in this field for more than a decade, and am still to find one which is as comprehensive as ‘Grownups Are Just Kids With Money’. The book lets you learn everything in one single place. From investing, to insurance to taxation to salary structures, while still being really easy to read.
  2. It’s ruthlessly impartial, and unaffiliated. There are no products to push, no commissions to earn. Everything you’ll learn about, is something which will work best for you and for you alone.

There’s a reason why its been called the ‘Bible of Finance’, and it has an average rating of 4.7/5 on Amazon and 4.6/5 on Goodreads. As an author, I hardly make 10% of the book’s listed price. So I truly have very little incentive to sell you the book. But you on the other hand, stand to gain a 10 year head start on financial knowledge, for the price of a pizza meal.

2. You could look for a financial workshop in your city

Good workshops are even harder to come by, but you may just find one.

You could also find courses which you could take online, but fair warning; online courses usually have a 96% dropout rate. So you’re better off keeping a tab on the events in your city for an in-person workshop. A word of caution again here, is that several commission-earning platforms often masquerade as financial education providers. Many even offer free workshops and courses, since they stand to gain a lot in commissions from your investments. In which case, you’ll not be signing up for education, but for propaganda.

If you’d like to attend mine, I’ll be conducting the first public workshop on the first weekend of 2019, on Jan 5th & 6th in Bangalore. You’ll find some details about the program here. I’m still to finalize a venue and I’ll ensure I post a new blog here when the details are final. It might just make sense for you to subscribe to the blog so you receive an alert the minute that comes up. Only 20 seats will be sold. I enjoy teaching small groups, since the learning is so much more effective.

You can subscribe for alerts below. There will never be any spam or any ads. Since I detest ads and value privacy as much as you do. You can additionally write to me at frontdesk@desaivinod.com and I’ll add you up.

Until then, Happy Moneyplanting.

[Update: Tickets for the workshop on Jan 5th can now be purchased online here. ]

Why Commission-Free, Fee-Only Financial Advisors Are Rare

In case you aren’t able to comprehend how valuable this information is, or how rare a no-commission, fee-only financial planner is, here’s some data.

As per SEBI, there are currently a total of 1032 registered financial advisors in India. And so far, I’ve come across about 15 fee-only financial advisors.

Yes, 15. That’s less than 2% of all registered financial advisors in India.

So why are they rare? And how are they different from other financial advisors?

To understand this, you’ll first need to first understand what Direct plans are. If you know about Direct plans already, then you could just skip to the last section of this post.

So what are Direct Plans?

Like any other financial product in the market, mutual funds too contain middlemen. And since a middleman is involved, you lose a percentage of your wealth to them in the form of commissions.

Direct plans of mutual funds on the other hand, are a way to invest directly with the company which runs the mutual fund. (These companies are also called as AMCs or Asset Management Companies). Since no middlemen are involved, you don’t lose money on commissions. Consequently, your mutual fund investments generate more wealth. You could call them a ‘no-broker’ way of mutual fund investing.

This middleman could be your De-mat account provider, your bank relationship manager, your financial advisor or a fancy new mutual fund portal you came across online.

When you invest through them, you invest in what are called as Regular plans. And these always contain a middleman.

The word Regular is a rather mis-leading adjective if you ask me. They should be ideally be called as ‘Commission based’ plans.

Until 5 years ago, it was near impossible for investors to invest directly. Like most real estate rental transactions in cities like Mumbai, there almost always had to be a middleman. And this middleman needed to be paid year after year, even if you hadn’t changed your house or availed any of their services.

But in 2013, as per SEBI’s directive, all AMCs were mandated to provide a way for investors to invest directly. So every mutual fund now has a Regular variant and a Direct variant.

So how much of a difference does a Direct plan really make?

Simple math; if you invest just 8000/- per month for 20 years, and your mutual fund provides a return of 13% per year, investing in a regular plan would have made you 91.6 Lakhs. Whereas the direct plan of the same fund would’ve given you 1.05 Crores.

That’s a difference of over 14 Lakhs.

This difference was created due to just a 1 or 1.5% increased return provided by the Direct plan. This is the staggering impact which tiny, insignificant numbers have on your wealth.

For example, Reliance Small Cap fund(Regular) provided a 5-year return of 38.74%, while Reliance Small Cap Fund(Direct) provided 40.15.

Similarly, ABSL Tax Relief fund, which is quite popular among tax-saving plans, provided a Regular return of 25.7%, and a Direct return of 26.8 over a 5 year period.

Now, I know many investors who invest 25,000 or even a 1 Lakh per month in mutual funds. And historically, there have been plenty of funds which have provided more than 28% return over a 5 year period. Redo that math with these numbers and the difference will drop make your jaw drop.

I’m not going to beat around the bush more, since even my earlier post (which you can read here) spoke about the virtues of Direct plans. The summary being that Direct plans outperform their Regular counterparts by a huge margin.

If Direct plans are so good, why doesn’t SEBI just get rid of Regular plans?

This might sound like a weak logic, but commissions are necessary. Without commissions, agents have no incentive to sell a product. Would you sell a product which makes you no money whatsoever?

So in a way commissions in mutual funds are necessary since it incentives distributors and advisors to promote and sell them. Without incentives, mutual funds wouldn’t have been as popular as they are today. So this is a chicken and an egg problem.

There is no doubt though that the problem of commissions is going out of hand.

How do these middlemen/distributors justify their earnings?

I’ve had acquaintances whose financial advisors had told them that many funds do not have Direct variants. That’s a straight out lie. But it was nevertheless said.

The more conventional justification has been that they provide valuable advise and guide the less knowledgeable investors in the right direction, and hence are deserving of commissions, however large they might be.

This would’ve been a perfectly valid argument, if not for the case that SEBI, the regulatory body which looks after investor’s interests probably for the first time ever, recently said that it is very concerned about the commission issue. In FY 2018 alone, an incredible 8500 Crores was earned by distributors as mutual fund commissions.

And it is for this exact fact that several financial advisors/distributors don’t charge any upfront fee for their services. They’ll most certainly make way more in commissions than what you would have ever agreed to pay.

Clearly when you read all of this, it’ll beg the question. How do you know you are not being misled? If you were a salesmen, wouldn’t you want to sell more of the product which provides you more income?

Enter commission-free financial advisors.

Who are fee-only, or commission-free financial advisors?

Commission-free financial advisors are advisors who do not earn any money as commissions. When they invest your money, they only suggest Direct plans of mutual funds. Since they don’t act as middlemen, they can’t be swayed by the lure of products which provide them higher commissions.

So how do they make money?

They charge a fixed upfront fee. And that is their primary or perhaps sole source of income. But what works in your favor, is that once this fees is paid, they only have your interests in mind.

Having interacted with several of the advisors on the list, I can assure you that what they charge as up front fee is completely justifiable, since you stand to lose lakhs or even crores otherwise.

Take me to the list

While I have covered a few of them individually on my blog already, I’ll be writing a follow up post shortly, with a complete list. A seperate post will help me keep the information concise and up-to-date. As the awareness of commission-free financial advisors grows, I’m quite certain that more advisors will switch to a commission-free model.

So subscribe to receive new updates on the blog from the home page and you’ll be among the first to know when the list is put up.

Until then, Happy Investing!

[Update: Follow up blog with the list is up. Read it here.]

mutualfunds, investing, wealth, investingbasics