Hi Tejas, you are losing all my respect buddy. Very comfortably you ignored my example and decided to quote yours without any thought/research.
1. If expense ratio for direct is 1.2 and regular is 2.5. That means I pay 1.3% extra. This is debited end of everyday and not end of a year. So if you understand how compounding works and this 1.3% is debited everyday, I'd pay almost over 2% as annualized AUM or more if markets do well that year.
2. Rs 50 is 1% of 5000. I get it. But expense ratio is applied on my entire investment continuously and not just one time. So at end of 1 year, expense ratio will be applied on 12 x 5000 = 60000 + whatever current NAV. So in my example, second year, I will be paying 1.3% extra on my investment of say Rs 80000 everyday, 3rd year on say 3lks and so on. I am investing into a mutual fund for long term, I may never sell it. So at end of 10 years, I will be paying this 1.3% annualized daily to you the conniving distributor for no work of yours on say an MF portfolio of mine which is 15lks. This is considering an SIP of only 5k, but as people grow their size of SIPs grow too.
So if I invested say 15000 as SIP in regular with you, I would have paid you atleast 3lks in distributor commission and end of 20 years it would be 30lks extra.
So please stop misleading people on an open forum saying investing in regular is better than direct just because you want to earn a lot of money from your client for his lifetime. Start caring for your client, it is extremely important to become successful.
Okay, so you lost all your respect for me because of my "frivolous answer"? Great. I didn't think it was that easy
.
- The expense ratio differs from fund to fund ranging from approximately 1.5% to 2.5% per year (2.5% being the maximum allowed limit). Yes, it is an open-ended fund so NAV has to be debited on a daily basis, that's a given. The net impact depends on how the market performs. For example, if the NAV goes down from 100 to say, 95, the expense ratio is calculated on 95. Markets don't go up in a uniform manner.
- Correct, that's what I have mentioned in my post. (1% on ₹5000 not accounting for the growth factor either in terms of returns or AUM).
There is no denying that direct funds are beneficial to investors. That's not my bone of contention. The fact that direct MF platforms forego distributor commissions and charge clients directly are at odds simply because their earnings don't justify their advisory efforts
(especially, those who charge one-time fees). This is because the investment size is so small that a one-time token advisory fee of say ₹2000-3000 is too much for them because it's almost equivalent 1 monthly SIP installment. My statement is about the viability of doing that.
The thing is, in finance all things can be extrapolated in the long-term. In this case, you extrapolated commissions saved via direct schemes to 20 years. But in real life, it works differently. The larger the amounts get, the smaller the expense ratios are likely to become
(Either individually, as a mutual fund or as a result of the AUM of the industry itself). Things evolve.
Make no mistake, the industry used to have an entry load of more 2% for open-ended funds and an exit load of 2% at one point. Today, distributors (IFAs) make some 1% of equity AUMs annually, payable on a monthly trail commission basis. Tomorrow is unpredictable as regulations are changing fast.
And lastly, I'd be the last person to misguide people. I understand you have strong feelings but I don't see a reason for you to try and malign our reputation for my realistic opinion on the MF distribution market. I understand from your previous posts that you have a bias towards Zerodha. I respect that you do. But making hardline statements about me misguiding people? Not fair.
Anyways, moving on with the thread.