Should you buy MFs directly from banks?

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Chanchal Shah of Mumbai was using net banking to transfer money. Then her eyes fell on the mutual fund section of the bank’s site. When she looked there, she came to know she can directly invest money in mutual funds from there.

Shah was very surprised. Until now, she had to go to her distributor to invest money in mutual funds. On the bank’s site, it looked like investing was so swift. From the point of view of convenience, it seems really easy.

But, should Chanchal invest in mutual funds through a bank? Many investors face this questin.

So let’s try to clear the dobts of Chanchal and all other investors.

Savings of funds You may not have to pay any fees by investing money in MF through the bank. On the contrary, if you buy from a financial advisor or distributor, then obviously you have to pay some fees. But, it is not that you are getting a free purchase of MF from the bank. You have to pay money here too and it is in the form of a high expense ratio.

Ways to Invest in MF People also have doubts regarding what are the ways to invest in MF? It is very important to know this. In MF you can invest in two ways — regular plan or direct plan. Direct plan can be bought directly from the website of a company. While regular plans are bough through financial intermediaries like distributors, financial advisors. Companies pay commission to them which is deducted from you as a fees of plan. Due to this regular plans are more expensive.

Now what do banks do is that they make you invest in regular plan funds. The expense ratio in these is much higher than in direct plans. In a direct plan, you can invest money directly on your own or you can do it with the help of an advisor.

If you do this with the help of an advisor, then you have to pay some fees for this work.

Lowai Navlakhi, chairman of the Association of Registered Investment Advisors (ARIA), says, “There is no problem in investing in a mutual fund from banks. But you should know that they invest in regular plan funds which have higher expense ratio as compared to direct plans.”

But why are banks insisting so much to sell MFs? So, the answer is the increasing interest of people in mutual fund investments. There is no problem in investing money in mutual funds through banks. Banks can give you better service and special attention. But, you should also check the performance of the fund, the mathematics of spending on it, and then make a decision.

(Disclaimer: Stocks recommendations by experts or brokerages are their own and not those of the website or its management. Money9.com advises readers to check with certified experts before taking any investment decisions.)