Why arbitrage mutual funds are becoming attractive
Over the past few years, the mutual fund industry has positioned itself as a primary vehicle for wealth creation for investors. Riding on the coat-tails of the mutual fund industry are a slew of start-ups that now provide direct mutual fund investment options to investors. Their proposition is simple: avoid visiting each mutual fund’s website and selecting a direct plan; why not download an app or visit a website, and invest in direct mutual fund schemes.
These mutual fund aggregators, such as Paytm Money, Groww and Kuvera, are essentially distributors of mutual funds. The fact that they don’t charge a commission when you invest in mutual fund schemes makes them very attractive for investors of regular MFs and those who prefer direct MF schemes.
Does it make sense though to invest through these new-age mutual fund distributors?
How they work
Aggregators such as Groww and Kuvera are technically investment accounts that allow you to invest in mutual funds’ direct plans; there is, therefore, no commission charged.
The onboarding process is similar across platforms — you have to set up your account by entering your email address and PAN, and link it up with your bank account that will fund your investments.
For beginners, these platforms provide investment products without charge after an evaluation of your investment time horizon and ability to withstand risk. Almost all types of mutual fund products such as balanced funds, tax- saving funds and liquid funds are available on these platforms.
You can also invest in index funds through these platforms. Some aggregators charge a fee for other specialised services such as tax planning before selling mutual fund units.
For investors who are savvy and like to use direct plans to cut their cost of investing, these platforms can help aggregate all their direct schemes under one roof. Also, these platforms offer a more hands-on view of investors’ portfolios.
In case you want to stop an SIP temporarily and restart it from a later date, that process is also seamless. Topping up your SIP can be done through the click of a button without the hassle of setting up a new SIP, which is the case when investing through a mutual fund’s website directly.
Apprehensions
Some of the apprehensions a few investors have when investing online are with regard to security or learning how to deal with new technology, like mobile apps for payments and investments. Many long-term MF investors who still prefer to invest through distributors in regular plans, end up bearing the cost of a higher expense ratio.
Hence, it may pay to assess various mutual fund platforms that can bring down your costs significantly. These platforms have to register with SEBI and also have to adhere to the same data security regulations as other market participants.
Some of the new-age direct mutual fund distributors like Paytm Money allow people to invest only through their apps.
Whether you choose to invest through these newer platforms is eventually a leap of faith. Do you want the convenience of investing in direct schemes of mutual funds without the hassle of registering multiple SIPs on different websites? If the answer is yes, you might find a right fit.