At some point in time, we all considered starting investing in equities through the stock market. After researching for the best and safest option, we came across mutual funds. According to “experts” mutual funds are the safest way to invest in the (stock) market for beginners. You would find your bank’s name in the list of mutual funds and you will contact your branch. Bang! You are into the loop of indirect or regular plans.
In indirect plans, Asset management company (hereafter AMC, company which manages mutual fund) gives commission to the banks or agents to get unit-holders (buyers of mutual fund’s units i.e. you) for the scheme. Here because of conflict on interests, banks or agents will try to, or rather I would say, force you (mostly :/ ) to sell schemes which give them the maximum commission. Commissions are almost around 0.75% to 1.5% on the total invested money. Now, you must be wondering how this tiny amount of commission will affect our investment. Let me tell you, my friend, these percentages charges are deducted on the total amount of invested money, every year.
Let’s understand it with the help of an example. Let’s suppose you have invested ₹10,000 in the first year, for that they will deduct ₹100 from your investment, considering a commission of 1%. Keeping that you invest the same money next year, your total invested money will become ₹20,000, now you will be charged at 1% on ₹20,000, i.e. ₹200. Assuming the same investment strategy for the next 10 years, you will pay ₹1,000 during the 10th year. Looks expensive, right? Let’s understand the alternatives.
In 2014, AMCs had introduced direct plans for mutual funds, in which you can directly invest your money through their website or by visiting their offices (not banks :p ). This system had reduced commission charges as well as paper works. But now, it was difficult for retail investors to compare different mutual funds and select best for them, previously which was done by agents with obviously some biases.
To bridge these gaps, many start-ups like Groww, Kuvera, and PayTM popped out as ‘one-stop solution for mutual fund’s direct plans’. But as always, it takes a lot of time to gain the trust of customers when it comes to money. Currently, only Groww has more than 25 lacs active users, and numbers are rising.
Here are some points why I believe these platforms will change the landscape of the investment industry:
No commission fees as these are direct plans.
Easy to start with the help of eKYC and removing formality of paperwork.
One can find as well as compare all different mutual fund schemes in one place. Click here to see whole comparison.
Community to help new investors in the form of a YouTube channel and forums.
Every detail investor needs to analyze a mutual fund including major holding, the profile of the fund manager, and various ratios. Check here to understand more.
Live tracking of investments on investor's dashboard.
Now the question arises, how these firms are generating revenues if they are not charging us?
Well, currently they all are trying to build a customer base and parallelly building a premium version of applications, which will give customized suggestions according to their financial goals of investor and charge them in return. But, according to them, it would be optional and one can continue with the normal version.
To sum up, FinTech is changing the dynamics of the finance industry, and mutual funds are also not left out from it. Because of its user-friendly infrastructure, the app-based investment can be a game-changer. The only caution here is to research before investing from any application, and preferable stick to popular ones with good reviews.
Happy investing!
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