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Last Updated : Feb 08, 2017 01:35 PM IST | Source: Moneycontrol.com

Staying with direct plans is the best route

One of the things that has been witnessed in recent times has been that investors do not make the best use of direct plans.

Arnav Pandya

Investors are encouraged to go towards direct plans in mutual funds as it will provide them with various benefits. But one of the most important things related to direct plans is that the real benefit comes with staying with the plan for a long time period. This will allow appreciation of capital and at the same time the lower expense ratio will translate into higher returns that can compound over years. One of the things that has been witnessed in recent times has been that investors do not make the best use of direct plans. In fact one such survey showed that nearly 80 per cent of direct plan investors redeem their units within a year. This is one issue that needs some attention from investors.

Knowledge of process

One of the first things that an investor has to do is to have a proper idea about the process involved while using direct plans. This is because unlike other avenues where there is help for them from a distributor or some other intermediary the situation here is different and everything that needs to be completed has to be done on their own. This covers the process right from the research about the fund that one would select to the manner in which the investment would have to be done and the time when one would have to exit the investment. There is no help that they would get from someone like a distributor so there is a need for them to be ready for such a situation. If one is not ready then there is a chance that there would be a wrong decision taken which could lead to withdrawal of the money when this should not be done.

Long term investment

The other thing that the investor needs to know is that they should move towards a direct plan only when they have a long term investment in mind. In the short term if there is not much time available for them then the benefits of the direct plan will not even be visible. The lower expense ratio would not reflect truly in a few months of performance. This is the reason why direct plans are actually very good for those who want to invest for the long term and keep their money in the investment for years on end. The ability to ride out the ups and downs of the market along with the lower cost would ensure that the overall returns that are earned from the investment turn out to be higher than what they would normally have been.

Belief while investing

If there is no advice that one has taken while investing then it is likely that a person will be swayed by the short term happenings around them. This can lead them to make decisions which might not be in their best interest. For example a sharp crash in the markets could lead equity mutual fund direct plan investors to lose their nerve and start pulling out money when the real approach that is required is to stay put and continue with the investment. There will be several such conditions that the investor will face and they have to understand that their investment should continue for a longer time period so quick moves is not something that they are looking for. There is a need to have firm self belief or actually consult a good advisor who can give the investors the right advice when it is required. This will be a very valuable thing that will help the investor to take the real benefit of the direct plans.
First Published on Feb 6, 2017 09:09 am