In the modern DIY (do it yourself) world, the convenience and transparency offered by online portals is a big draw for investors.
With the advent of robo-advisors and direct online investment portals, investors now have the option to invest without paying commissions to intermediaries. Needless to say, this helps in saving costs.
In the modern DIY (do it yourself) world, the convenience and transparency offered by online portals is a big draw for investors. But unless you are a disciplined, knowledgeable and matured investor, you could end up penny wise but pound foolish, say experts.
“Investment is not just about saving that half a percent. Don’t miss the big picture,’’ cautions Hemant Rustagi, CEO, Wiseinvest Advisors. For instance, an investor investing directly may save half or one percent on commission, but if he invests in a low-return fund in the same category, he ends up losing more.
The issue of commissions has come into the limelight following the mandate issued by markets regulator Sebi asking mutual fund houses to send a consolidated account statement (CAS) to investors detailing commission payment made to distributors.
“If you are investing in a ‘regular’ scheme of mutual funds (going through the usual route of a distributor), you are paying lifetime commissions on your investments. Also, the commissions you pay grow every year as your wealth grows - the trail commission is paid on the growing asset value every year,’’ says Mukesh Kumar Singh, co-founder and director, Robobanking. “By investing in the direct plan (online) of a scheme instead of regular plan, you can save on the commissions that you may be currently paying,’’ suggests Singh.
But going through the distributor has its advantages. “The commission is in lieu of the services we offer to investors such as ensuring vital paperwork is done correctly, ensuring that the investor meets the KYC (know your customer) norms of Sebi and banks,’’ says a leading distributor.
Investors are very fickle. If there is a correction, they panic and choose to exit from the markets. “At such difficult moments, the handholding by distributors helps to ensure that they stay invested,’’ points out the distributor.
Decisions have to be taken not just at the time of investment but throughout the tenure of the investment; that is, whether to continue the investment or reduce or increase exposure. “Investors need to choose a mechanism that helps them throughout their investment tenure,’’ says Rustagi.
Despite knowing that equities gives better returns than any other investment, less than 5% people invest in the equity markets in India. “Out of 10 people we talk to, only one finally ends up investing,’’ says the distributor.
Even those interested in investing, delay investing due to inertia or because they are trying to time the markets. “When the distributor follows up with you regularly on your investments, half your job is done,’’ points out Rustagi.
What matters is that the investor makes money rather than sweating over the commissions.
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