Zero Expense Mutual Fund Investment

Are you one of those mutual fund investors who loath to pay a single paisa to the MF agent/ advisor? Are you one of those savvy investors who do all there homework, select funds to invest in, but still have to pay the agent for only depositing the filled up form with the fund house? After SEBI abolished entry load for investment in mutual funds still we have to pay something to the intermediary. Since you do all the work of researching and selecting funds why should you pay a single paisa to anybody? Various banks and financial institutions will charge you 1 – 2 %, sometimes a little more for MF investments, presumably for advisory charges. Buying MFs using demat account is not cheap either as you pay while buying and also during selling. If you sell after significant appreciation of your fund the charge as percentage of the initial investment amount becomes even higher.

In the following few paragraphs I present you with a few options where you can transact without paying a single paisa to anybody.

1) If you are a HNI, look no further than ICICI direct. IDirect charges you nothing if your MF portfolio equals or exceeds 8 Lac with them.

2) Most (But not all) MF AMCs now have in place an online investment platform where you can transact with your e-banking account. Nowadays most banks provide you with internet banking facilities free of charge. Make full use of it. Initially you need to make one invest physically through an agent/ broker. Insist on filling the form yourself. Provide your mobile number and email address to avail many useful features such as SMS intimation of transaction etc. If your email is registered with the AMC you can also get statements of your account on demand. Now tick at the proper place to apply for a PIN number which will allow you to perform online transactions. This PIN number will be delivered to you later through courier. Once you get you get your PIN number, you can register with the AMC and make the all the transactions that you want. Just make sure to enter agent code as DIRECT while making purchases. One draw back of this approach is that you have to register individually with the AMCs that you wish to transact with.

3) In the last few months another avenue has opened up foe MF investors. And this is a freeway. Two online mutual fund distributors ( FundsIndia and Fundsupermart ) have made possible what was a desire of many for a long time: MF investment without cost. These two distributors allow you to invest with a variety of fund houses absolutely free of any charge. They earn from the distributor commission and trail commission. You need to make only an one time registration with them.

4) Bajaj Capital offers a service called Transaction Services where they will do the application handling for free.

One of these solutions may be the solution you were looking for. Also the common investment platform likely to be launched by the middle of 2010 may offer another similar option. Let us wait and see. In the meanwhile keep up your saving and investing habits.

Cheers :)

Payback time for some insurance cos

Today I read an article in the Indian Express that new businesses of the life insurance companies grew 22% to Rs 55,355 crore in the first eight months of the current fiscal. However, the private insurance companies has lost business by 6%. ICICI Prudential is leading the losers pack with 28% decline in premium collection. Another major player Bajaj Allianz has declined by 11%.

Guess its payback time for some. Selling all those policies 'loaded' in favor of the agent and the insurance cos has to catch up with them some time.

I have one first hand experience of these policies. My wife was sold one such ULIP 3 years ago. It was called Bajaj Allianz Capital Unit Gain. My father-in-law was explained that this was the best possible plan that he could buy at that time. Best possible plan of course, but not for his daughter, but his insurance advisor. This is one of those actuarial funded products which IRDA ordered Bajal Allianz to withdraw by the end of August 2007. (see Here). My wife paid the first premium of this policy with a cheque dated 14th Sept 2007, the policy commenced from 20th of Sept. So much for a product which is supposed to offer protection.

The charges for the produce are fantascic. It has an allocation charge of 5% throughout the policy term! Policy administration charges of Rs 600 pa increasing by 5% pa compounded annually. Surrender charges are extremely high, so that you lose almost all your money if you want surrender the policy even after paying premium for several years. Fund management charges vary from 0.95% to 1.75%.

The beauty is the 'Initial management charge'. Though called 'initial', it is applicable for 20 years. So for 20 years it will deduct 5% of the the fund corpus at each monthly due date. I have seldom come across such a product that wrings out profits for the agent and the company from the common investor. Bajaj Allianz can be sure that I will never even consider that company for any of my life insurance needs. And she is only one of those hundreds who has been sold that policy. So, most of those families will also never touch any Bajaj Allianz product with a pole.

I also find that Bajaj Allianz advertises most of its products as tax saving products. The insurance component is rarely stressed. their products are to be bought in an tax emergency, that is in hurry when y0u are supposed to sign on the dotted line without going through all the fine print.

Caveat Emptor.