Would you mind sharing your views about the article (dark sides of direct mutual funds)


New to the stock and MF world.
Read an article about dark sides of direct mutual funds .

Would you mind sharing your views about this. Is it based on the interests of clients/investors or MF promoters?

Pure BS!

At times too much analysis leads to crisis.
Mutual funds have been one of the best tools for long term wealth accumulation and returns shouldn’t be given primary importance in my opinion.
Now in comparison to regular plan, if a mutual fund subscriber is able to save few pennies, it’s a good for him / her. There no point of digging too deep into the intricacies of how this works internally as long as cost of direct plan stays lower than regular. So as @saiography said… Ignore this and accumulate your wealth :slight_smile:

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Currently, several registered investment advisors (RIAs) are promoting direct plans by projecting future returns. Often, these projections are shown anywhere between 10 and 18 percent. This is a direct violation of the basic principle that future returns cannot be projected and the SEBI advertising code. It is misselling

Not a dark side of direct MF’s. Its a dark side of the RIA industry, which I presume sells direct MF’s and other products

Second, some RIAs use the sales line that investors can save up to 1.5 percent annually using direct plans. This difference in the returns between direct and regular plans is projected into the future. A prominent RIA advertises that with the 1.5 percentage point difference, investors can earn an additional Rs 25 lakh in 25 years. However, less than five percent of mutual funds schemes have a 1.5 percentage point difference in direct and regular plan returns. The difference can be as low as 0.02 percentage points, as it is for some equity funds. This is another example of mis-representation

Again, misselling by RIA’s being considered a dark side of direck MF’s ?

Third, there is a huge conflict of interest. Some mutual funds have started offering a portion of marketing budgets and investor education spends to RIAs selling direct plans. A recently launched direct plan platform made it a pre-condition for mutual funds to commit a minimum annual budget for featuring their schemes as a top investment idea. Aren’t RIAs and such platforms supposed to give unbiased advice? SEBI needs to ensure that there be no commercial arrangement between the manufacturer and the advisor (or their group entities) to avoid this conflict of interest. It should also prevent the misuse of investor education budgets for such purposes.

MF’s pay commissions to brokers in regular plans anyways… So maybe this diminishes the benefits of direct MF’s, but not a “dark side”

Fourth, mutual funds are organising events (for example, a World Cup screening with cocktails) for some of their direct and potentially direct investors. Some mutual funds have also started offering kickbacks to large investments in their equity funds by direct investors in form of marketing spends to group companies or even to the investor themselves. How the clock has turned back with direct plans! SEBI should make such payouts an audit point and penalise any such violations found strongly.

Brokers already do this (I get a premium credit \ debit card and extra facilities from ICICI because of my demat relationship with them)

Fifth, some mutual funds are subsidising their direct plan costs from regular plans. Take, for instance, the separate teams set up by mutual funds to sell direct plans. Usually, the distributor of a mutual fund bears the client acquisition cost, advisory cost and part of the servicing costs of investors. When a mutual fund sets up a direct sales team, all these costs get transferred to the fund itself. So logically, these costs in such a direct sales set-up should be borne by direct plan investors. However, currently this is being borne by regular plan investors as per the regulatory definition. SEBI should change this. All acquisition and servicing costs for direct investors should be borne by only by direct plans. This will be fair and equitable rather than the current mis-accounting.

Not quite a dark side for the direct MF investor :slight_smile: , and a lot of marketing would be common b/w direct and regular plans (for regular plans also you can call the customer care, etc). If this cost is to be bucketed, the cost of developing relationships with brokers would need to be bucketed as well. Unknown without numbers if this clubbing of platform costs hurts direct or regular plan investors