With benchmarks becoming harder to beat, avoid very high-cost funds

The Securities and Exchange Board of India (Sebi) has, through a circular dated November 5, mandated that asset management companies must disclose expense ratios for direct and regular plans separately in their half-yearly statements.

- HIMALI PATEL

"Sebi is looking to make disclosures regarding expenses of regular and direct plans uniform and transparent for investors," says Kaustubh Belapurkar, director-manager research, Morningstar Investment Research India.

Direct or regular?

Direct plans are ideal for do-it-yourself (DIY) investors who can make their own investment decisions, from asset allocation to fund selection.

For new investors needing guidance, there are two options: working with a distributor who earns commissions from regular plans, or with a registered investment advisor (RIA) who charges a fee and recommends direct plans.

"A new investor making a small investment may find an RIA's fee steep. For such an investor, buying regular plans through a distributor may be more cost-efficient. Once their portfolio grows, they may move to an RIA. This is assuming both the RIA and the distributor are equally competent," says Deepesh Raghaw, a Sebi-registered investment advisor.

Passive funds