To be extremely careful about small amounts of money and not careful enough about larger amounts of money

It’s been five years since the introduction of Direct Plan investing option in Mutual Funds, the first break-through came in the form of abolishing of entry loads in 2009 and the next reform was introduction of direct plans in 2013 offering an option for investors to invest with their own knowledge about Mutual Funds by surpassing an advisor’s assistance.

Interestingly there is a steady increase in the number of investors over the past few quarters who are actively opting to invest choosing direct plan ignoring regular plan option. There is no doubt that ultimately there should be a level playing field and introduction of direct plans has perhaps, been in this direction.

Now the all-important question is if investors are doing right by opting to invest through “direct plan.” It should be understood by those investors who have chosen and would be choosing direct plans is that Mutual Fund is not a product but a “solution to life events.”

Four questions to be answered before investing are Why, Where, How and When to invest, the first question “why” to invest is obviously for a “purpose” or “goal” that the investor should have.

You are a prospective investor who wants to create a “retirement corpus,”

• Are you aware how much retirement corpus should be created ?
• Are you aware what percentage should be considered as future inflation ?
• Are you aware of the future bank interest rate based on which the corpus should be created and receive the annuity upon retirement ?
• Are you aware of your risk profile ?
• Are you aware how to choose different investment products that suits your risk profile ?
• Are you capable of choosing the right Mutual Fund categories with proper weights to each of the themes ?
• Can you differentiate between a Conservative Hybrid Fund, Aggressive Hybrid Fund and a Dynamic Hybrid Fund ?
• Are you aware of the difference between Large Cap and Multi-Cap funds ?
• Can you differentiate between a thematic & a sector fund ?
• Can you re-balance your portfolio at appropriate junctures at a future date when it would be necessary to take such steps ?
• Don’t you want to talk to an expert when markets are down to discuss what should you do ?
• Are you okay to talk to a “call center” person when you are badly in need of some service or advice ?
• Can you decide on your own how much sum assured you really need to cover your financial risks ?
• Are you still buying traditional insurance plans and are you aware how expensive are endowment plans, money-back plans and ULIPs ?

As an investor if you have the right answers for all aforementioned questions then opting for direct plans would be appropriate if not, definitely the assistance of a qualified advisor is essential. What should be noted here is that a mistake made today by choosing wrong themes, schemes and weights it could be irreparable at a later stage and even leading to huge losses or achieving lesser return on investment.

D o you know that if you choose wrong categories of Mutual Funds and wrong schemes and continued to invest for 20 years, even 2% lower return could make you poorer by almost Rs.10 lakhs.

If investors think that Google is an answer for choosing the right Mutual Funds, then they are completely wrong. Google is only a search engine that throws the options after collating data that is fed by various websites and such list of performers could be different a week later. And further if investors are choosing to select their Mutual Funds schemes by looking at 5 star ratings, mind you, the ratings would drastically differ from entity to entity. If one has rated 5 star for a scheme, the same could be rated 3 stars by another so whom would you believe in ?

Make no mistake, Mutual Funds were never a product but has always been solutions to life events ranging from managing children higher education, children marriage, retirement, vacations and the likes that will occur at different life stages over the future years. Invest in Mutual Funds with defined goals and look for a good advisor who could assist you with meeting your goals. You will surely find a worthy advisor who would be happy to advice at no additional cost but would gleefully do it through a regular plan option that is designed to offer his or her fee.

It is important to note that the difference between the Direct Plan and Regular Plan expense ratio is not very big and the cost you might incur today by opting for an advisor would be evened-out through strong performance in the long term. You decide.