Investments have always been a part of human life. However, the innovations and variety of tools in investments have increased exponentially in recent decades. As did the investment platforms. The power of compounding and the sense of security encourages people to invest their money in various financial tools, especially Mutual Funds. Before committing to any MF or investing platform, let's get to know about the different types of MFs:
Types of Mutual Funds:
In general, Mutual funds are broadly classified into regular MF and Direct MF. Direct MFs are mutual funds selected and invested directly by the investor without the involvement of an intermediary whereas, in Regular MF, the investor gets complete guidance on buying and selling Mutual funds with a dedicated advisory team by the investing platform. The investing platform charges a percentage commission for the assistance provided.
Consider buying land. You can invest your time and resources in finding eligible landowners catering to your needs. Or, you can hire an experienced land broker and rely on him to find the right property according to your requirements. Similarly, while investing in a Direct MF, you should be ready to put extended effort and time into learning the market, or you can pay a commission to the investment platforms to help you in choosing the right MF in case of Regular MF. Like paying delivery fees for online food orders due to the lack of time, investors pay commission to the investment platforms due to their lack of expertise and ease in MF.
Parameters while choosing the best-suited investment platform:
Availability of different modes of investment:
The two major modes of investment in Mutual funds are Lumpsum investment and SIP (Systematic Investment Plan). In a Lump-sum investment, the investor makes a single payment of a lump sum amount and holds it for a longer period. On the other hand, in SIP, the investor invests a certain sum of money at regular intervals of time in the selected Mutual funds for a long time.
Transparency:
Investment in Direct MFs does not incur any additional charges as it involves no third-party advisory. But the regular MFs charge a certain percentage of fees as the investing platform guides their investors in choosing the right Mutual Fund and provides periodical reports about the investments to keep their clients updated about the market changes and trends. You can see investors complaining about spending some extra commission in managing their wealth with a Regular MF. But, they say "If you are good at something, never do it for free".
The user interface of the investment platform:
Nowadays, all the investment platforms came up with slick mobile apps. This enables the users to start their investment journey with a click. However, you should check the accessibility and user interface of the apps and website before jumping into investment. You should also keep in account the different features offered by different investing platforms.
Research reports:
Investing in Mutual funds is not a walk in the park. Mutual funds possess certain risks based on market changes. Therefore, you should be aware of the changes in the market. In Regular MF, the investment platform provides periodical reports to the investors on their investments or sectors and companies of interest in a nutshell. On the other hand, Direct MF investment requires you to study and understand the market trends to make informed decisions.
Customer service:
Almost all the investing platforms offer customer services. Despite the basic customer assistance, Regular MFs provide extensive support to the investors in choosing customized Mutual funds based on the investors' risk potential, needs, and long-term financial goals. This type of service is essential for first-time investors and beginners until they gain a certain level of expertise in choosing a Mutual fund. Therefore, customer service is one of the important criteria when choosing an investing platform.
Product offerings and additional features:
Investing platforms, in addition to mutual funds, offer other products such as insurance, stocks, pension schemes, fixed deposits, etc. Therefore, you should also consider additional products to diversify your portfolios. This helps the investor to manage their portfolio in a single platform rather than supervising their investments across various brokerage firms. Moreover, investment in various financial tools minimizes the risk for the investors. But discounted investing platforms don't offer this service, and their investing platform is solely focused on mutual funds.
Key takeaways:
No universally accepted investment platform is best suited for different investors with different requirements. Therefore, the Regular MF providers charge a commission in return for offering insights into the market trends. However, Direct MFs' does not require any additional investments. But they require investing a lot of time and effort to gain expertise in the field. If you are a do-it-yourself kind of person with exceptional interest in Bulls and Bears, you can choose the Direct MF. But if you are a beginner with no experience in the market, you can choose Regular MF.
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