#expenseratio

Fidelity Investments has just launched a couple of new mutual fund schemes with zero expenses for retail investors in the US. These are the first ever zero expense ratio self-indexed funds for retail investors available in the market -Fidelity zero total market index fund (FZROX) and Fidelity zero international index fund (FZILX). In India, SEBI has been making efforts to make mutual fund investment a viable proposition trying to bring down the expense ratio and to increase the take-home returns of investors. With regards Index funds, coming up with zero expense mutual fund schemes can be a practical thing. But applying the same in case of actively managed funds would be challenging and might even be unsustainable in the long run. The revenue model for zero expense mutual funds is to earn stock lending fees (SLB) on the underlying holdings. The problem is, the stock loan market is practically non-existent in India, and so zero-fee mutual funds are a non-starter. That said there are already several index ETFs in India that have an expense ratio in the range of 5-10 bps which can be considered as an alternative to zero-fee mutual fund schemes to invest in Indian market. The primary question is should you invest in a zero expense mutual funds if available in India. Investment decisions should be based on a number of factors, the most important being the investment goal, the investment duration, the risk appetite, and the historical performance of the fund. While the expense ratio is a criteria, it should not be the over-riding factor for an investment decision. The right way to invest in a mutual fund is first to pick the right fund, and then select the lower-fee direct investment option not the other way around Indian Mutual Funds have traditionally produced a significant amount of alpha over the benchmark. Thus, active investing is more prevalent in India as compared to markets like the US where passive investing is garnering a lion’s share of flows. Thus from an Indian context currently as things stand evaluating funds from a risk adjusted basis is a more useful barometer. Lastly, zero expense mutual fund schemes like those launched by the Fidelity follow their own in-house indices whereas Indian index funds and ETFs follow broader market indices. This makes existing Indian ETFs and index funds more transparent than Fidelity’s exchange funds. Also, the expense ratios of many Indian ETFs and direct plans of index funds are already as low as 0.05%, making them as good as zero cost funds. Security lending & borrowing: Earn extra income Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 10 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ Read the full article

Fidelity Investments has just launched a couple of new mutual fund schemes with zero expenses for retail investors in the US. These are the first ever zero expense ratio self-indexed funds for retail investors available in the market -Fidelity zero total market index fund (FZROX) and Fidelity zero international index fund (FZILX). In India, SEBI has been making efforts to make mutual fund investment a viable proposition trying to bring down the expense ratio and to increase the take-home returns of investors. With regards Index funds, coming up with zero expense mutual fund schemes can be a practical thing. But applying the same in case of actively managed funds would be challenging and might even be unsustainable in the long run. The revenue model for zero expense mutual funds is to earn stock lending fees (SLB) on the underlying holdings. The problem is, the stock loan market is practically non-existent in India, and so zero-fee mutual funds are a non-starter. That said there are already several index ETFs in India that have an expense ratio in the range of 5-10 bps which can be considered as an alternative to zero-fee mutual fund schemes to invest in Indian market. The primary question is should you invest in a zero expense mutual funds if available in India. Investment decisions should be based on a number of factors, the most important being the investment goal, the investment duration, the risk appetite, and the historical performance of the fund. While the expense ratio is a criteria, it should not be the over-riding factor for an investment decision. The right way to invest in a mutual fund is first to pick the right fund, and then select the lower-fee direct investment option not the other way around Indian Mutual Funds have traditionally produced a significant amount of alpha over the benchmark. Thus, active investing is more prevalent in India as compared to markets like the US where passive investing is garnering a lion’s share of flows. Thus from an Indian context currently as things stand evaluating funds from a risk adjusted basis is a more useful barometer. Lastly, zero expense mutual fund schemes like those launched by the Fidelity follow their own in-house indices whereas Indian index funds and ETFs follow broader market indices. This makes existing Indian ETFs and index funds more transparent than Fidelity’s exchange funds. Also, the expense ratios of many Indian ETFs and direct plans of index funds are already as low as 0.05%, making them as good as zero cost funds. Security lending & borrowing: Earn extra income Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 10 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ Read the full article

Direct Plan in mutual funds were introduced on 1st January 2013 & since then within five years their share has grown to 40% of the industry’s total AUM. With consistent push from various stakeholders, direct plans contribute 14% of the total AUM held by individual investors. Product awareness campaigns by various market participants have consistently increased retail participation in direct funds. Mutual fund distributors/brokers and financial advisors help investors with the paperwork, fund selection and after-sales services. In lieu of that, they receive a commission from the mutual fund houses in the form of upfront and trail commissions. In reality the commissions are borne by the investors as the fund houses deduct them, in addition to other expenses, from the funds’ net assets. Thus the expense ratio of regular funds are always higher. With increased financial awareness empowering many to make their own investment decisions and technological advancements allow them to buy, sell and avail other services online there was a need to create a separate plan without commission. Thus SEBI directed mutual fund houses to create a separate plan which were termed as ‘direct plans’ as investors could buy them directly from the fund houses without the involvement of financial intermediaries or their expenses associated with them. Other than NAVs and expense ratios, other scheme characteristics such as fund management, investment objectives, asset allocation strategy, investment style and portfolio composition are the same as regular plans. Direct plans score over regular plans on higher returns. We look at aspects like expense ratios, NAVs and returns. They are all related to one another as a lower expense ratio leads to higher returns & NAV. Operating expenses include distributor’s commission along with administration, management, advertising expenses, etc. As fund houses do not incur distribution cost in direct plans, the  expenses of direct plans are lower than the regular plans, which translate into lower expense ratio. The expense ratio of direct plans is usually ~1% lower than that of corresponding regular plan. The lower expenses ratio of direct plans leads to higher returns as the savings made in distribution expenses remain invested and compound over a period of time. Although, the difference in returns may look trivial during the initial years, it becomes substantial over the long term. For example if expense ratio of direct plan is 1% lower than its regular plan, assuming that the SIP of its regular plan fund gives 15% annualized return over the next 25 years and its direct plan gives 16%, SIP investment of Rs.5000 in the regular and direct plans would grow to Rs.1.64 cr and Rs.1.99 cr respectively. Direct plans have higher NAVs than corresponding regular plan due to higher returns. As a fund’s operating expenses are deducted from its AUM, the lower operating expense of direct funds leads to higher NAVs. One can purchase direct plans from the mutual fund houses, either online or through their branch offices. Some independent financial advisors and online mutual fund marketplaces also offer direct plans but only in lieu of an advisory fee. This fee is directly paid by the investor and not routed through the fund houses. http://sipcalculator.in/ Steps to choose best performing mutual funds Balanced funds for monthly dividends- Temporarily Regular… Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ Read the full article

Direct Plan in mutual funds were introduced on 1st January 2013 & since then within five years their share has grown to 40% of the industry’s total AUM. With consistent push from various stakeholders, direct plans contribute 14% of the total AUM held by individual investors. Product awareness campaigns by various market participants have consistently increased retail participation in direct funds. Mutual fund distributors/brokers and financial advisors help investors with the paperwork, fund selection and after-sales services. In lieu of that, they receive a commission from the mutual fund houses in the form of upfront and trail commissions. In reality the commissions are borne by the investors as the fund houses deduct them, in addition to other expenses, from the funds’ net assets. Thus the expense ratio of regular funds are always higher. With increased financial awareness empowering many to make their own investment decisions and technological advancements allow them to buy, sell and avail other services online there was a need to create a separate plan without commission. Thus SEBI directed mutual fund houses to create a separate plan which were termed as ‘direct plans’ as investors could buy them directly from the fund houses without the involvement of financial intermediaries or their expenses associated with them. Other than NAVs and expense ratios, other scheme characteristics such as fund management, investment objectives, asset allocation strategy, investment style and portfolio composition are the same as regular plans. Direct plans score over regular plans on higher returns. We look at aspects like expense ratios, NAVs and returns. They are all related to one another as a lower expense ratio leads to higher returns & NAV. Operating expenses include distributor’s commission along with administration, management, advertising expenses, etc. As fund houses do not incur distribution cost in direct plans, the  expenses of direct plans are lower than the regular plans, which translate into lower expense ratio. The expense ratio of direct plans is usually ~1% lower than that of corresponding regular plan. The lower expenses ratio of direct plans leads to higher returns as the savings made in distribution expenses remain invested and compound over a period of time. Although, the difference in returns may look trivial during the initial years, it becomes substantial over the long term. For example if expense ratio of direct plan is 1% lower than its regular plan, assuming that the SIP of its regular plan fund gives 15% annualized return over the next 25 years and its direct plan gives 16%, SIP investment of Rs.5000 in the regular and direct plans would grow to Rs.1.64 cr and Rs.1.99 cr respectively. Direct plans have higher NAVs than corresponding regular plan due to higher returns. As a fund’s operating expenses are deducted from its AUM, the lower operating expense of direct funds leads to higher NAVs. One can purchase direct plans from the mutual fund houses, either online or through their branch offices. Some independent financial advisors and online mutual fund marketplaces also offer direct plans but only in lieu of an advisory fee. This fee is directly paid by the investor and not routed through the fund houses. http://sipcalculator.in/ Steps to choose best performing mutual funds Balanced funds for monthly dividends- Temporarily Regular… Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’ Read the full article

  I use  because (1) it’s free, (2) it tracks all of my accounts and overall net worth, (3) my account balances automatically update, (4) it shows how my investments are diversified and allocated in various sectors, and (5) can use built-in tools like “Investment Checkup” to get….wait for it…free personalized advice!   Read the full article