Pros and cons of buying MF directly from AMC or Demat account or Agent?

[msgforsunil]

Hi All,

We can buy MF(Mutual Fund) from an agent or directly from AMC or Demat account. What are the pros and cons of buying from various sources?

Thanks
Sunil Kumar

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[PolicyWala]

The advantages and disadvantages of holding Mutual fund schemes in Demat Account are summarised below:
Pros:

1. Convenient and Paperless transactions: You can centralize your mutual fund and stock investments at one place and/or have multiple schemes spread across fund houses. Also, there would be no tiresome process of form filling or giving documents every time you buy MF.
2. Simplifies the nomination requirements for your investments: This is true in case of a single nominee for all your investments.
3. Convenient in case of change in contact information: This consolidated platform Demat Account helps if the investor changes his address or mobile number. Instead of multiple applications to different Fund Houses requesting for change of address, you need to give just one application for the multiple investments you hold. Once the change in contact information is updated with your depository participant (DP), the same will get registered electronically with all the AMCs and RTA.

Cons:

1. Higher charges: Trading and holding mutual funds schemes through Demat Account is a bit expensive compared to the same done through independent online mutual fund platforms such as FundsIndia and FundsSuperMart. Most Brokerage houses charge a flat fee for both lump sum and SIP investment in mutual fund schemes unlike the online mutual fund platforms who offer the same service for zero fees.
2. Advantageous if you are a Stock Investor: Investment in mutual fund schemes through Demat Accounts is useful and cost effective for those who also invest/trade in direct stocks. Otherwise, you are better off investing in mutual funds through other channels.
3. Not all schemes offered under Demat Account: You can purchase and hold units of mutual fund schemes of only those AMCs with which your Brokerage House has tie-up with. If you wish to invest in schemes of other AMCs, you may have to consider other channels (as listed above).
4. No Joint Account holdings: Joint account mutual fund investments cannot be held in a single holder Demat Account, and vice versa.

Source - investmentyogi.com

[PolicyWala]

Mutual Funds Agents commissions -
1) Commission from Client
This is the commission which customer pays to the agents for their service. It generally ranges from 0.5% – 2%.
This is the commission you will pay to agent every time you do the investment. Example - If you invest Rs 10,000 per month and your agent charges commission @1% , he gets 1% of 10,000 = Rs 100 every month.
2) Upfront Commission
Upfront commission is the commission paid by AMC (mutual funds company) to agent in the first year. The commission varies from one AMC to another and varies across different categories of mutual funds. Example - If upfront commission is 0.5% , and your SIP is Rs 10,000 per month , then upfront commission would be 0.5% of 10,000 = Rs 50 per month , ie : Rs 600 for 1st year.
3) Trail Commission
This commission is mostly hidden from general public. Trail commission is the commission paid to agents by AMC in subsequent years. The most important point you should know is that trail commission is percentage of total AUM (total worth of customer). So if your total Worth of investments in a particular year is Rs 10 lacs and trail commission is 0.5% . AMC will pay 0.5% of 10 lacs = Rs 5,000 to the agent. This is the commission paid to your agent out of your money, Its adjusted from NAV. Which means that if an agent has 100 clients who have Rs 10 lacs of investments (current worth , not investment) with an AMC, then total AUM (assets under management) of that agent is total worth of all the customers, which is Rs 10 lacs X 100 = Rs 10,00,00,000 (10 crores) . So he will get 0.5% of 10 crores = Rs 5 lacs.

Source - JagoInvestor.com

[PolicyWala]

I would go for online investment in Demat, because I can sell/redeem my MFs units at any time.