Wealth Forum Tv
How Regular Plans create more wealth for investors than direct plans ?No. of comments:0 Saurabh Bajaj, MUMBAI, 76474 On 02-Aug-2017

Hello Friends, We keep coming across articles / arguments which say that in long term direct plan investor gains more than regular plan investor. One “self-proclaimed-messiah” of investors asked this question that, if there are 2 investors A and B advised by same advisor, A pays fees and invests in direct plan whereas B invests in regular plan of the same fund. His argument was that direct plan investor will have lower costs and higher wealth in long term. I am sharing a small analysis with you, which can help you to counter this argument of regular and direct. So continuing with the same example, if there are 2 investors A and B advised by same advisor. A invests in Direct and B invests in regular. Further calculations are as below : They have say Rs. 1 Lakh to invest on 1st Aug 2017. Advisor Charges A Rs. 25,000 as flat fee and gives direct plan (These guys are fans of flat fee). Advisor doesn’t charge anything to B and gives regular plan. The Direct plan is available at Rs. 103 and regular at Rs. 100. Investor A gets 728.1553 units on 1st Aug 2017 (after paying Rs. 25,000 as fee, he was left with only Rs. 75,000 to invest) Investor B gets 1000 units on 1st Aug 2017. For 10 years (fairly long term), regular plan grows at 12% p.a. and direct plan grows at 12.75% p.a. After 10 years, the Rs. 1 Lakh with A (Direct investor) is Rs. 2.49 Lakhs and the Rs. 1 Lakh with B (regular investor) is Rs. 3.10 Lakhs. Regular investor beats him by almost 24% as the initial flat fee acts as a deterrant. For a win-win situation for both investor and advisor, a regular plan works much better. This is because, advisor’s revenue increases only with the growth in investor portfolio. Hope this is helpful. (Note : if an RIA charges 0.75%-1% of AUM as fees, then even direct plan is having expense almost similar to regular plan. Thus, it wont make any difference to investor anyways).

Submit Your Comments

"We trust that you will avoid using harsh language and will refrain from making unsubstantiated allegations against individuals and firms. Your constructive feedback and opinions are very valuable to all of us in the industry. "

Comments Posted
No Comments Avilable

Recent Videos

Recent Articles

Copyright 2017   All Rights Reserved.Wealth Forum Ezine