By Tensing Rodrigues*
Very soon it may be possible for you to order your Mutual Fund investment from Flipkart. Yes, I am not joking. In addition to regular and direct plans SEBI is looking to introduce a third plan in mutual funds called E-commerce plan to be sold through e-commerce websites like Flipkart, Amazon and Snapdeal.
What this means in your and my language is that up to now investments in MF schemes were through an agent or directly through the MF branch office. In future MF investments can be through online vendors like Flipkart, etc. Why then call them this plan or that plan? Isn’t it all the same potatoes with only the shopkeeper being different? There is a small difference.
To understand the difference we have to understand how a MF operates. A MF collects money from different investors in a given scheme in a common pool. It meets its operating expenses from this pool. The balance gets invested in whatever assets it is to be invested in. The profits, if any are shared proportionately among the investors. The operating expenses that are deducted include the marketing expenses which include the commission paid to the agent. This is how the Regular Plan operates. In case of the Direct Plan, since there is no agent involved and therefore agent’s commission is not deducted from the pool. So the profits available for distribution are supposed to be a little more, at least in theory.
The new e-commerce plan is supposed to be between the regular and direct plan in terms of the ‘cut’ to the investors’ pool. Now the question is should you go for it? There is nothing wrong with buying from online vendors. Most of us do it. I do it myself. There are pros and cons. Two years back I wanted a fridge. I had never bought anything from Flipkart beyond a mid-range cellphone. Things like books or pen drives I order from Flipkart without a second thought. Fridge was a different ball game. However the difference in price was almost 15- 20 per cent. I mustered courage and ordered one but could not be at peace till I could feel the freezer really chilling. Sometime later I ordered some travel bags from another site because the offer was too tempting; the bags looked too good for that price. When they arrived, I realized they will not carry more than two kilo tomatoes. And so on.
The experience with online purchases can vary. But the important point here is that there is a real difference between buying a fridge and an MF scheme. The fridge comes with a warranty; the MF scheme does not. And, I suppose, Flipkart will not offer its usual 10 day return facility for MF schemes. In case of MF schemes I do not expect Flipkart to either return or refund.
My principle is in matters of investment, keep it simple and keep it personal. Give thought to the investment that you are intending to make. It is your money and it has to work for you. So study the investment well. Do not deceive yourself with the false belief that you do not understand much about it. You may not be an automobile engineer, but still, when you buy a car, you consider all aspects of it. Though you are neither a fisherman nor a chef you do not buy mackerels like a dumbo. So invest some time in your investment. Let me put it this way the return from an investment is directly proportional to the time that you invest in it and the risk in an investment is inversely proportional to the time that you invest in it.
Once you have done that go to an agent you trust. Yes, even though you consider all aspects of a car before you buy it still you consult your trusted mechanic – there is no substitute for experience. If you do not have a trusted mechanic, at least consult someone who has had a longer affair with cars then you. But in no case get carried away by all that fuss about the commission earned by the agent. You do not worry about the car dealer’s commission or the fisher woman’s margin; you go for the best, viz. a reliable product and a trustworthy seller. Why should you cut corners only in case of investment? And regret for being penny wise and pound foolish!
The author is an investment consultant. Readers can send their comments and queries to firstname.lastname@example.org