An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by investment managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in the scheme information document.
Anybody with an investible surplus of as little as a few hundred rupees can invest in mutual funds. The investors buy units of a fund that best suits their investment objectives and future needs. A Mutual Fund invests the pool of money collected from the investors in a range of securities comprising equities, debt, money market instruments etc. after charging for the AMC fees. The income earned and the capital appreciation realised by the scheme, are shared by the investors in same proportion as the number of units owned by them.
Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI.
For a retail investor who does not have the time and expertise to analyse and invest in stocks and bonds, mutual funds offer a viable investment alternative.
This is because:
Here is a library of questions that may arise in your mind. Each set of questions and answers are self-explanatory. If you still feel that you have some other doubts, feel free to get in touch with us.
There are several benefits from investing in a Mutual Fund.
A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.
On the basis of Objective
No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.
A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.
On the basis of Objective
In an open-ended mutual fund there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price that is linked to the net asset value (NAV). In case of closed-ended funds, the total size of the corpus is limited by the size of the initial offer.
NAV is the net asset value of the fund. In simpler words it reflects what the unit held by an investor is worth at current market prices.
Investors need to be clear that mutual funds are essentially medium to long term investments. Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk of direct investment accompanied with professional fund management.
Mutual Funds give returns in two ways - Capital Appreciation or Dividend Distribution.
The NAVs are published in financial newspapers and also available on the AMFI website on a daily basis.
The charge collected by a Mutual Fund from an investor for selling the units or investing in it. When a charge is collected at the time of entering into the scheme it is called an Entry load. The entry load percentage is added to the NAV at the time of allotment of units. However SEBI has now prohibited charging entry load on mutual fund schemes. An Exit load is a charge that is collected at the time of redeeming or for transfer between schemes (switch). The exit load percentage is deducted from the NAV at the time of redemption or transfer between schemes. Some schemes do not charge any load and are called "No Load Schemes".
An exit load is a levy that an investor pays at the point of exit. This is levied to dissuade investors from exiting the fund. Assume that the current NAV of the fund is Rs.12.00 and that the exit load is Rs.0.50. Now if you sell 800 units then you stand to receive 800X11.5= Rs. 9200.
Yes. One can redeem part units also.
Though Close-Ended Mutual Funds are listed on the exchange they have a limited number of shares and trade at substantial premiums or more often at discounts to the actual NAV of the scheme. Also, they lack the transparency, as one does not know the constitution and value of the underlying portfolio on a daily basis. In ETFs, the numbers of units issued are not limited and can be created/ redeemed throughout the day. ETFs rely on market makers and arbitrageurs to maintain liquidity so as to keep the price in line with the actual NAV.
Portfolio Management Service is a tailor made professional service offered to cater the investments objective of different investor classes. The Investment solutions provided by PMS cater to a niche segment of clients. The clients can be Individuals or Institutions entities with high net worth. In simple words, a portfolio management service provides professional management of your investments to create wealth.
There are many benefits of availing Portfolio Management Services. Some of them are:
Along with it we also send half yearly reports and yearly Audited reports for convenient Tax Filing.
We provide each client an audited tax statement of his portfolio annually. This can be used for calculating your tax liability and hence forth filing returns. However, we advice all our clients to consult their tax consultant before filing of their tax returns.
As a part of our service offering and in an endeavour to provide complete transparency of the dealings in the clients PMS account, the following reports are emailed to the clients to their registered email id/ mailed to the correspondence address, which will enable the clients to track their portfolios. The reports are sent on a monthly basis before the 10thof the next month.
TrueQuest Financial Services provides discretionary Portfolio Management Services wherein the portfolio manager manages your portfolio without having to bother you with the day to day decisions. The portfolio manager takes all the investment decisions on your behalf.
However, we do a comprehensive reporting to maintain complete transparency in managing your portfolio. You will receive regular updates and a detailed report on your portfolio, allowing you to track its activity and performance.
We offer discretionary as well as non-discretionary portfolio management services. In our discretionary portfolio management service, the discretion to invest primarily lies with the portfolio manager. However at the time of giving us the portfolio you can give us list of securities,sectors, etc. which you do not/cannot invest in your portfolio due to reasons like conflict of interests, religious beliefs etc. and we will take care of your need.
In our PMS, we understand that you have given us your hard earned money and therefore we ensure that we answer every query. You can anytime request for an appointment/call and we will arrange a meeting/call with the fund management/Investment advisory team for discussion about portfolio spread and returns or any other query you may have regarding your portfolio.
Yes, you can withdraw your profit anytime you want, provided your portfolio‘s value does not fall below the prescribed limit of Rs. 25 Lacs, as per SEBI regulations.
You can give minimum Rs.50,000 as a Top Up (additional investment) in any of your strategy accounts.
Your PMS account will activate only after you deposit a minimum of Rs. 50 lacs in the account (combination of cash and stocks). To put in money, you can use one of the following ways:
You can use your current securities / shares to make investment in PMS Account, but these will have to be liquidated and the sale amount should be minimum Rs. 25,00, 000.
The Portfolio Management Services is open for all Indian nationals, resident or otherwise.NRIs will have to open a PIS Account as required under RBI guideline sin order to invest in the PMS scheme.
Yes, you can open a PMS account with a combination of cash and stocks. The initial portfolio of securities/ shares will be re-aligned as per the model portfolio.
You can open a PMS account with us, if you are:
You can open a PMS account by emailing or calling us at our exclusive PMS desk. Once we receive your request one of our executives will get in touch with you shortly. You can call us on: 080-4190 2795 or email us at: truequestfinancialservices@gmail.com
You can visit our Website: www.truequestfinancial.com
1. Amongst India’s one of the leading PMS Service Providers, with Assets under Management of approx Rs. 2700 Crores as on 31st December 2014.
2. Value Strategy is the single biggest discretionary PMS strategy in the country withal of over Rs. 1225 crores as on 31st December 2014 clearly showing client’s trust in our product’s performance & services.
3. Our Flagship “Value Strategy” has consistently outperformed the benchmark across market cycles over a 11 year period.
4. TrueQuest PMS has one of the largest active customer base of 4500+ on PMS Platforms on 31st December 2014 clearing showing strong trust developed with customers.
5. 1crore invested in Value PMS in March 2003 is worth Rs. 17.86 crores as on 31st December 2014 v/s. just 8.19 Crores if it would have been invested in CNX Nifty Index.
6. TrueQuest Portfolio Management Services has active clients in 138 different cities right from Agra to Vijayawada; a testimony of strong acceptance of our PMS across the length & breadth of the country.
Data as on 31st December 2014
Investments in Securities are subject to market and other risks and there is no assurance or guarantee that the objectives of any of the strategies of the Portfolio Management Services (PMS) will be achieved. Investors in the PMS Product are not being offered any guaranteed/assured returns. Past performance of the portfolio manager does not indicate the future performance for any of the strategies.
1. An SIP is a specific amount,invested for a continuous period at regular intervals
2. It is similar to a regular saving scheme like a recurring deposit.
3. It allows the investor to buy units as per a pre decided frequency; the investor decides the amount and also the scheme / scrip to invest in.
4. Due to the principle of cost averaging, more number of units are bought in a falling market and fewer units in a rising market.
5. SIPs allow you to take part in the stock market, without trying to time it, also bringing discipline to your investments.
1. Power of saving: The power of saving underlines the essence of making money work if only invested at an early age. The longer one delays in investing, the greater the financial burden to meet desired goals. Saving a small sum of money regularly at an early age makes money work with significant impact on wealth accumulation explained through the illustration below. Illustration:
| At end of Year | 5% | 10% | 15% | 20% |
| 1 | Rs.1,050 | Rs.1,110 | Rs.1,115 | Rs.1,120 |
| 5 | Rs.1,276 | Rs.1,611 | Rs.2,011 | Rs.2,488 |
| 10 | Rs.1,623 | Rs.2,594 | Rs.4,046 | Rs.6,192 |
| 15 | Rs.2,079 | Rs.4,177 | Rs.8,137 | Rs.15,407 |
| 25 | Rs.3,386 | Rs.10,835 | Rs.32,919 | Rs.95,396 |
The above is for illustration purpose only. The SIP amount, tenure of SIP, expected rate of return and unit price are assumed figures for the purpose of explaining the concept of advantages of SIP investments. The actual result may vary from depicted results depending on scheme selected. It should not be construed to be indicative of scheme performance in any manner. Past performance may or may not be sustained in future.
2. Rupee Cost Averaging: Timing the market is a difficult task. Rupee cost averaging is an automatic market-timing mechanism that eliminates the need to time one`s investments. Here, one need not worry about where share prices or interest are headed as investment of a regular sum is done at regular intervals; with fewer units being bought in a declining market and more units in a rising market. Although SIP does not guarantee profit, it can go a long way in minimizing the effects of investing in volatile markets.
3. Convenience:
Three simple paperless steps to invest in an SIP:
1.Register for an SIP online
2.Fill the required details
3.Ensure availability of funds
4. Disciplined Investing:
It’s the key to investing success. Regular investment makes you disciplined in your savings and also leads to wealth accumulation. Systematic investing is a time-tested discipline that makes it easy to invest automatically. Investing regularly in small amounts can often lead to better results than investing in a lump sum.
An SIP means you commit yourself to investing a fixed amount every month.Let’s say it is Rs. 1000/-. When the market price of shares fall,the investor benefits by purchasing more units; and is protected by-purchasing less when the price rises. Thus the average cost of unit sis always closer to the lower end making the investment profitable.The illustration below explains the benefit of an SIP over a lump sum.
Hence,at the end of the period total units purchased will be 188 & cost per unit will be Rs. 48/-. Thus, the profit from the above investment will amount to Rs. 799/- (Rs. 9,799 – Rs. 9,000)
The above is for illustration purpose only. The SIP amount, tenure of SIP, expected rate of return are assumed figures for the purpose of explaining the concept of advantages of SIP investments. The actual result may vary from depicted results depending on scheme selected. It should not be construed to be indicative of scheme performance in any manner. Past performance may or may not be sustained in future.
Funds will be invested in underlying security of the Nifty 5yr Benchmark G-sec Index. The Nifty 5yr Benchmark G-sec Index is a single bond index tracking the most liquid 5 year benchmark security issued by the Government of India. As on 31st October 2020, the underlying constituent was 5.22% GS 2025 (IN0020200112). For detailed methodology - click here; for historical Index values - click here.
The ETF is labelled as ‘Moderately Low Risk’ according to ‘Riskometer’. The ETF invests in government securities (G-Sec) which are backed by Government of India, hence virtually carry ‘No default’ risk.
Bond prices are sensitive to changes in interest rate. Typically active fund managers tend to alter the duration of the fund based on their interest rate outlook, whereas in case of Constant Maturity structure the overall duration at fund level is maintained in the pre-set range.
Typically the debt fund and especially G-Sec fund has lower risk in term of their price volatility over medium to long term. However yet there are few risks which need to be noted as below.
Credit Risk: The fund has practically NIL credit risk since it invests in Government Securities which is backed by Government of India.
Price Risk: The price of debt instruments including G-Sec is sensitive to changes in market interest rate, an increase in interest rate may cause bond prices to fall. The ETF is expected to have lower risk as compared to long duration G-Sec whereas higher risk as compared to short duration G-Sec.
Reinvestment Risk: Coupons received will be reinvested in the underlying index basis prevailing yield.
Liquidity Risk: The underlying index, includes security which is the most liquid G-Sec in the given duration bucket. Hence fund has low liquidity risk, given historical trend. This above list is indicative and not exhaustive, please read the offer document before investing or contact your financial advisor.
Like any other debt mutual fund schemes, there are no assured returns.
Investing in the ETF is easy. You may reach out to your financial advisor or log-in to www.truequestfinancial.com. You can also call us at 080-4190 2795.
During NFO: Rs 500/- and in multiples of Re 1/- thereafter.
On-going basis:
On Exchange: Investors can purchase/redeem units of ETF on Stocks Exchanges like equity share; the units can be bought/sold in round lots of 1unit and in multiples thereafter. We have appointed market makers to provide ongoing liquidity to buyers/sellers on exchange.
Directly with AMC: In addition units of ETF can be purchased/redeemed directly with the Mutual Fund for the creation unit size of 20,000 units (approx. amount of basket is INR 950,000/-1 )
Total Expense Ratio for the ETF is 0.22% (i.e. 22 basis points).
There is NIL entry/exit load.
There are no restriction either on purchase/withdrawals. The ETF has NO lock-in period.
The coupon received on the underlying security will be reinvested in the underlying index constituent.
Any resident individual (including NRIs) and non-individual can invest, please refer to the offer document and consult your financial advisor before investing2. As it is an ETF, transaction will be settled compulsorily in dematerialized form and investor is required to have a Demat and trading account.
We have appointed a ‘Market Maker’ in order provide sufficient liquidity to buyers and sellers on the Stock Exchanges. The market maker also has an additional responsibility to maintain spread between buy and sell price as low as possible.
The units of TrueQuest 5 Year G- Sec ETF will be settled as per the normal settlement cycle (T+2), like any other equity share.
If the investment is held for more than 3 years it qualifies for Long Term Capital Gains Tax @ 20%, along with option to avail indexation benefit. Any investment horizon lower than 3 year, would attract the Short Term Capital Gain Tax and taxed as per the applicable tax bracket.
Units of the ETF will be settled compulsorily in dematerialized form. The investor must have Demat account in order to invest in this ETF. During NFO, the investor must disclose the DP’s name, DP ID Number and Demat account number. All applications without relevant details of investor’s depository account are liable to be rejected.
No. As this is an ETF, STP/SIP & SWP are not allowed.
Exchange Traded Funds (ETFs) are open ended mutual fund schemes, which are traded on stock exchanges like a share and seek investment returns that correspond to the performance of a particular index like Nifty 50 Index.
TrueQuest MOSt Shares M50 ETF (MOSt Shares M50) is an open ended fundamentally weighted ETF that seeks investment return that corresponds (before fees and expenses) to the performance of Nifty 50, subject to tracking error. It combines the benefit of mutual fund scheme with convenience of trading like a share.
MOSt Shares M50 is listed on the capital market segment of NSE and will trade like any other share. Investors can buy & sell the units of the Scheme at the prevailing price on NSE,which though a function of demand & supply, will be around the NAV of underlying MOSt Shares M50 portfolio. The indicative intra day real time NAV of MOSt Shares M50 will be displayed on AMC’s website.
The units of the Scheme would be in round lots of 1 unit on the exchange and Investors can buy/sell units of the Scheme in creation unit size i.e. 50,000units and in multiples thereof.
Exchange Traded Funds (ETFs) are open ended mutual fund schemes, which are traded on stock exchanges like a share and seek investment returns that correspond to the performance of a particular index like Nifty 50 or Nifty Free Float Midcap 100 Index.
It combines the benefit of mutual fund scheme with convenience of trading like a share.
Nifty Free Float Midcap 100 Index is formulated by India Index Services & Products Limited (IISL), a joint venture between NSE and CRISIL Ltd. It comprises 100 Free Float Midcap stocks with their weightage in index being determined based on their free float market capitalisation. The primary objective of the Nifty Free Float Midcap 100 Index is to capture the movement and be a benchmark of the Midcap segment of the market.
MOSt Shares Midcap 100 is listed on the capital market segment of NSE and will trade like any other share. Investors can buy &sell the units of the Scheme at the prevailing price on NSE. The price on NSE though a function of demand & supply is expected to be around the NAV ofthe scheme. The indicative intra-day real time NAV of MOSt Shares Midcap 100will be displayed on AMC’s website (www.mostshares.com). End of the day NAV of MOSt Shares Midcap 100 will also bepublished daily at the end of day before 9 p.m.on AMFI website i.e. www.amfiindia.com
The units of the Scheme can be bought/sold in round lot of 1 unit on the exchange, and Investors can buy/sell units of the Scheme in creation unit size i.e. 250,000 units and in multiples thereof.
Exchange Traded Funds (ETFs) are open ended mutual fund schemes, which are traded on stock exchanges like a share and seek investment returns that correspond to the performance of a particular index like Nifty 50, Nifty Midcap 100 or NASDAQ-100 Index. It combines the benefit of a mutual fund scheme with convenience of trading like a share.
Answer
TrueQuest MOSt Shares NASDAQ-100 ETF, (MOSt Shares NASDAQ 100) is an open ended Index Exchange Traded Fund that seeks investment return that corresponds (before fees and expenses) generally to the performance of the NASDAQ-100 Index, subject to tracking error. The Scheme will invest in the securities, which are constituents of NASDAQ–100 Index in the same proportion as in the Index.
The NASDAQ-100 is an index of 100 of the largest (by market capitalization) non-financial companies listed on the NASDAQ. It is a modified capitalization-weighted index. The companies’ weights in the index are based on their market capitalizations, with certain rules capping the influence of the largest components. It does not contain financial companies, and also includes companies incorporated outside the United States.
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. It is the largest electronic screen-based equity securities trading market in the United States and second largest by market capitalization in the world. The NASDAQ has more trading volume than any other electronic stock exchange in the world. When the NASDAQ stock exchange began trading on February 8, 1971, it was the world’s first electronic stock market (Source: NASDAQ Website).
MOSt Shares NASDAQ 100 is listed on the capital market segment of NSE and BSE and will trade like any share. Investors can buy & sell the units of the Scheme at the prevailing price on NSE and BSE, which though a function of demand & supply, will be around the NAV of underlying MOSt Shares NASDAQ 100 portfolio. The indicative intra-day real time NAV of MOSt Shares NASDAQ 100 will be displayed on AMC’s website (www.mostshares.com). End of the day NAV of MOSt Shares NASDAQ 100 will also be published daily at the end of day before 9 p.m. on AMFI website i.e. www.amfiindia.com
Passive investing is an investing strategy that tracks a market-weighted index. It broadly refers to a buy-and-hold portfolio strategy for long-term investment horizons, with minimal trading in the market. Investing in Index funds and ETFs are the most common form of passive investing.
An index fund is a type of mutual fund which constructs its portfolio by tracking the composition of a standard market index such as the Nifty 50 or the Sensex. The fund not only invests in stocks which constitute the benchmark index but also the same proportion.
For example – a rise of 1% in the index will lead to a 1% increase in the fund and vice versa. There are numerous indexes (Nifty50, Nifty 500, Nifty Smallcap 150) and many others.
An index fund is a diversified equity fund delivers returns in line with the index it tracks. For example – a midcap 150 index fund will track the nifty midcap 150 index.
The fund manager simply replicates the portfolio of the index in quantity, stocks and proportion. The fund manager has no discretion over stock selection/ strategy of the mutual fund and so the fund has no fund manager bias
Index funds are suited for passive investors i.e. investors who are looking to build long-term wealth but
Just like actively managed mutual funds, index funds are also managed by fund managers. But fund managers have a little role to play as all they have to do is replicate the index.
Popularity of index funds is mainly due to following reasons:
Index funds are built to replicate the index and most active fund managers charge fees to outperform indexes. Therefore, an investor who is purely looking to do better than the index should not invest in index funds. It’s important to point out that very few funds end up doing better than the index in the long-run.
• Low Cost: Since index funds are passively managed, the total expense ratio (TER) is very less as compared to the actively managed ones. While an actively managed fund may charge you anything between 1-2% as TER, an index fund would typically charge you between 0.20% and 0.50%. At face value, the cost difference may seem small but in the long run, it can become as large as 15% of net returns.
• Diversification: The biggest benefit of mutual funds is diversification. Holding a basket of stocks is proved to be a lot safer than holding individual securities. An index fund has proved to be more diversified since it does not invest in any particular sector, theme or a strategy. Hence lower risk.
• Minimal Scope for bias: Since the allocation of assets in case of index funds is not at the discretion of the fund manager, there is no scope of making losses due to inefficiency in asset allocation or poor management.
• Choices: Some index funds track broad market indexes (like large-cap, mid-cap etc.). Meanwhile, others track specific sectors or industry groups thus, offering a wide range of choices.
• Tax efficiency: There is little to no churn in investing in an index. Therefore – tax is minimized
• Returns: The average mutual fund typically fails to beat the broad indexes. With this in mind, index funds are a great way to capture broader-market returns.
• Better Risk Management: Index funds enable easier risk management due to the stability of its portfolio and the weights. In addition, it’s clear that a large cap index is less risky/volatile than a small-cap. It may not be clear for other non-index funds.
• Long-term investing: Fund managers change, most active funds underperform and funds close down all the time. Index funds negate all of the above. Therefore, great for investing for 10 years+.
TrueQuest offers 4 index funds- TrueQuest Nifty Midcap 150 Index Fund, TrueQuest Nifty Smallcap 250 Index Fund, TrueQuest Nifty 500 Fund and MO Nifty Bank Index Fund. While deciding where to invest, you must keep following things in mind
• Your risk appetite: How much risk you are willing to take. High returns always come with high risk,
• Your return expectations – All our funds are unique and are built to deliver different risk and return combinations.
Like in all mutual funds – there is always risk of losing money in the short-run. An index losing 1% daily will lead to the index fund’s value falling by 1%. However – over the long-run index funds have delivered healthy returns.
Ratings from independent sources is one of the convenient ways to compare different mutual funds. But they rely heavily on 3-5 past performance which is not a good indicator of future performance. In addition – independent ratings do not take into consideration risk profile of individual investors.
Diversification is the process of spreading risk by investing in multiple securities as opposed to a few. The rationale behind diversification is that a portfolio constructed of different kinds of securities will lead to higher long-term returns and lower the risk of buying one or two securities. Benefits of diversification: • Minimizing risk of loss – if one investment performs poorly over a certain period, other investments may perform better over that same period, reducing the potential losses of your investment portfolio from concentrating all your capital under one type of investment. • Preserving capital – not all investors are in the accumulation phase of life; some who are close to retirement have goals oriented towards preservation of capital, and diversification can help protect your savings. • Generating returns – sometimes investments don’t always perform as expected, by diversifying you’re not merely relying upon one source for income.
In order to compensate the managers for their time and expertise for selecting stocks and managing the portfolio, a management fee is charged by active fund managers. Also because of frequent buying and selling of stocks, it leads to increase in trading cost.
Index funds which is passively managed, follows a buy and hold portfolio strategy. Constituents of the portfolio seldom change, so fund manager’s role is minimized. That’s why index funds are cheaper than actively traded funds.
Index funds are passive mutual funds that track a particular index. There are different types of indices in India-
All index funds are not same because different index funds track different indices. But the philosophy behind investing remains the same.
The extent to which the index fund does not track the index properly is known as tracking error. It is the difference between a fund’s portfolio returns and the benchmark index it was designed to track. Low tracking error means a portfolio is closely following its benchmark.
Reasons for occurrence of tracking error-
Alpha and beta are two of the most important concepts in investing in mutual funds.
Beta represents market returns or benchmark returns. This index funds are built to deliver beta (market) returns.
Alpha represents the return in excess of beta returns. For example if the market/benchmark delivers 8% whereas a fund manager delivers 10%, alpha is 2%.
Every fund manager’s goal is to provide alpha. If he/she fails to deliver alpha, then investors are better off investing in beta products (index funds).
Expense ratio is defined as per unit cost spent for managing funds. Expenses generally include management fees and operating expenses. Index funds generally have lower expense ratios than actively managed funds.
• Entry Load: This is a charge or commission given by the investor at the time of the initial stage of investment purchase to the mutual fund company. The entry load is usually deducted from the investment amount, reducing the quantum of investment. In India, entry load is zero.
• Exit Load: Exit load in a mutual fund is a charge paid by the investors for selling mutual fund shares before the fixed time period. The commission is a percentage of the share’s value that is being sold. The return earned on selling the investment is reduced as the exit load is charged from the NAV. Exit load is different for different schemes.
All mutual fund schemes offer two plans- Direct and Regular. In a Direct Plan, an investor has to invest directly with the AMC, with no distributor to facilitate the transaction and no investment advice.
In a Regular Plan, the investor invests through an intermediary such as distributor, broker or banker who does all the market research, gives investment advice and is paid a distribution fee by the AMC, which is charged to the plan.
Therefore, the direct plan has a lower expense ratio as there is no distribution fee involved, while the regular plan has a slightly higher expense ratio to account for the commission paid to a distributor to facilitate the transaction.
Benefits of investing in a SIP-
• Convenience: You can invest in a disciplined and phased manner using SIP. It allows you the convenience of starting your investment with as low as Rs. 500.
• Cost Averaging: With SIPs- there is no need to time the market. By investing in SIP you buy shares when prices are low and also when prices are high. This reduces your overall cost of investment.
• Power of Compounding: The basic principle of compound interest implies that small amounts invested over a long period of time would result in a larger return compared to a one-time investment.
• Become a disciplined investor: An SIP investment would make you more disciplined in matters of managing your finances. With the option of automated payments, it means you don’t have to remember every month.