Would you buy a shirt a whole sale price or at retail (which has a markup)? The same goes for mutual funds wherein direct plans have zero markup.
For a long time, investment advice (and mutual funds) have been sold by distributors at retail price. This includes banks, brokers, wealth managers etc. They make money on the commission that is taken out of your investments – on a recurring basis. Dont be fooled that this is a one time thing.
Unfortunately because of this, many have tended to push wrong products for higher commissions. This includes:
- close ended funds (and fixed maturity plans) with lock-in and some shady transactions
- new fund offerings with no track record
- fixed deposits which are tax inefficient
- portfolio management services which carry high commission and hidden brokerage costs
- cross selling loans which may erode your wealth
- regular plan mutual funds with substantial commissions.
Worse, many also give wrong advice on the portfolio, just so that higher commissions can continue to be milked.
Role of a honest investment advisor
So the best thing is to do direct. The next question, is how do you choose which fund to invest in? And for how long? What do you do when markets are stormy – stay put OR get out? Who tracks these funds? What if you pick wrong funds? How do you rebalance the portfolio is it goes too much in one direction?
This is where a honest advisor comes in. For a low fee, which is a fraction of the commissions you would’ve anyway incurred.
There are many platforms which claim to be free, even offering direct plans , but the question is how do they survive and make money? They spend thousands of rupees just to acquire customers but how can they provide a reasonable service? If they make money by pushing other products (see list above), then it is not safe for your wealth.
Choose carefully and choose wisely, with a SEBI Registered investment advisory who places your interests first and advices only on zero commission mutual funds or zero brokerage investment products. This alone can grow your wealth by several times.
Link: Get a free portfolio check to see if your investment portfolio is safe
