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Can you tell me the drawbacks of direct investing in a MF versus Regular Plans

I am 24 years old and have been tracking the markets, mutual funds for past one year. Now I have decided to invest in a mutual fund through SIP. I want to invest in a balance fund and have filtered down to three funds - a) Tata Balanced Fund Regular Plan - Growth, b)ICICI Prudential Balanced Fund Regular Plan - Growth, c) HDFC Balanced Fund Regular Plan - Growth. If I intend to invest in the above funds directly, what will be the drawbacks instead of choosing regular plan other than the higher expenses? And If you were to choose one of the above funds to start invest now which would you choose?

Feb 10, 2016 by Gopi Dinesh S, Trichy  |   Mutual Fund

We should clarify that, expenses are lower in direct plans compared to regular plans. As a result, direct plans give slightly higher returns than regular plans. Whether you invest in direct plans or regular plans depends completely on you. If you think you have the necessary expertise to select the right mutual fund schemes for your investment goals and can devote sufficient time to executing mutual fund transactions and managing your investment portfolio, then you can opt for direct plans. On the other hand, if you lack the necessary expertise and cannot devote sufficient time to executing transactions and monitoring / managing your portfolio you can enlist the help of a financial advisor. It also depends on your level of interest. While investing is a necessity for all individuals, the interest level in investments and capital markets varies from individual to individual. Interest level is also a function of our available bandwidth in terms of time. Based on our experience engaged investors are able to manage their investments better and meet their financial goals, whereas less engaged investors can fall behind. However, a financial advisor can help less engaged investors stay on track and meet their financial goals. In Advisorkhoj, we urge all investors, whether they are investing directly or through financial advisors to build awareness and take interest in their finances. If you are interested in mutual funds and capital markets, you can build a certain level of expertise over time.

What kind of expertise are we talking about?

  1. You should be able to define your financial goals very clearly.

  2. You should know how much you need to invest systematically to meet your financial goals.

  3. You should know which products are right for you.

  4. You should be aware of what is going in capital markets and the reasons behind it.

  5. You should be able to monitor the performance of your investments and make appropriate changes when required

This is not rocket science. If you devote sufficient time you can build a certain level of knowledge. Otherwise, you can take the help of financial advisors who have that expertise.

Balanced Fund is an excellent investment choice for new investors. They are less volatile than pure equity funds and give excellent risk adjusted returns over a long investment horizon. All the three funds filtered by you are good balanced funds. While the Tata Balanced Fund has been rated higher by the research agencies in the recent past, the other two funds also have very good long term track record. You can select any one fund for your SIP. It is important to note that at different points of time, different funds will lead or lag other funds. Once you have selected a good fund, you should stay disciplined and continue to invest systematically towards your investment goal, without worrying what the market is doing. Also you should consider increasing your SIP amount as your income increases.

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