Don’t lose lakhs of rupees via commissions on your mutual funds investments

Did you know that many investors end getting upto 1.5% lesser returns every year by investing in regular mutual funds unknowingly or not realising the full impact of this? If you end up buying regular mutual funds on few online websites, bank website or mutual fund distributors, they end up getting commissions on your investments EVERY YEAR automatically. Most investors don’t realise that the commission is their money and by putting some minimal effort they could be saving lakhs of rupees over time.

Typically in mutual funds investments, the fund manager (one who invests on your behalf and goes the work of choosing the right stocks etc) charges a fee every year. The charges vary from 0.5-2% depending on the fund selected. Apart from this, regular mutual funds also end up paying the commission upto 2% to the distributor every year.

To put it in numbers, if you are doing an SIP of Rs 10,000 every month, across 30 years, you would end up paying a commission of Rs ₹54,40,318! This number looks quite high, but infact it is the truth. That’s a huge amount that could be there for you to spend. You could have 25% more wealth simply by investing through direct mutual funds.

SIP AmountReturnFuture ValueRegular MFs10,000 per month10%₹2,26,04,8792.26 CrDirect MFs10,000 per month11%₹2,80,45,1972.80 Cr

If you are investing a SIP of Rs 30,000 that comes to ₹1,63,20,954 (1.63 Cr) in commissions across 30 years. The distributor hardly adds value to earn this commission. They mostly will push you to stay invested so that they can get the commissions regularly.

Why does this happen?

In the mutual funds business, the seller (mutual fund distributor) ends up getting commission every year on the full current value of the investment. This is paid by the mutual funds companies to the distributors directly. Most of the investors are not clear aware of the value that they are letting go. It’s important to understand this and with minimal effort a lot of money can be saved over the years. This amount can be saved by investing in direct mutual funds.

Do cross check the mutual funds eCAS statement and confirm that all your investments are done in direct mutual funds. Want to know how much commission you are paying? Simply check the CDSL CAS statement or check commissions for the mutual funds you have invested in.

Direct vs Regular Mutual Funds

One may invest in mutual funds DIRECTLY i.e., without involving or routing the investment through any distributor/agent in a ‘Direct Plan’.

OR one may choose to invest in mutual funds with the help of a Mutual Fund distributor/agent in what is termed as a ‘Regular Plan’.

Direct Plan has lower expense ratio than the Regular Plan, as there is no distributor/agent involved, and hence there is saving in terms of distribution cost/commissions paid out to the distributor/agent, which is added back to the returns of the scheme. Hence, a Direct Plan has a separate NAV, which is higher than the “Regular” Plan’s NAV.

How to invest in direct mutual funds

1. You can invest through an app like Zerodha, ET Money, Paytm Money that specifically gives only direct mutual funds
2. You can switch your existing regular mutual funds investments into direct mode by using these apps

It’s been nearly a decade since the concept of direct mutual funds has come into picture. But, most investors are not full aware yet. 75% of the total investments are still under the regular mutual funds mode. If you are consistently investing in some mutual fund, then you can simply do investing on your own.

Please share this so that folks who aren’t aware can benefit from knowing this.

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