There are several mobile apps available on the tip of your fingers to install and start investing in direct mutual fund schemes. The biggest advantage of using mobile app for buying and selling mutual funds is the convenience and ease of transaction. Some of these apps, such as Paytm Money, Groww, Coin, Piggy, Sqrrl, etc, are offering direct mutual fund plans to invest and hence, saving on expense costs incurred by the investor.
Savings: Direct Vs Regular mutual fund plans
Siddhartha Rastogi, Director of Ambit Asset Management said, “Every penny saved in the transaction process and fund expenses is indirectly viewed as penny earned. From a long-term perspective of 10 to 15 years, these savings in expense compound to a substantial 13-15% incremental returns.”
For instance, you now invested Rs 5 lakhs in direct mutual fund scheme and assume 15% compounded returns over the next 15 years. You will get a corpus of Rs 60.75 lakhs assuming an expense ratio of 1.7% in direct plan, as against Rs 52.72 lakhs from a regular mutual fund plan with an expense ratio of 2.5%. Here, the difference of investing in direct and regular mutual fund plan will be Rs 8.02 lakhs which will be huge savings for an investor in the long term.
How to start investments in direct plans using mobile apps?
The process to start investing in direct mutual fund plans using mobile apps has become very simple. It requires no physical documents to be sent over.
Samant Sikka, Co-Founder Sqrrl – Investment & Savings App said, “Once the user completes the initial sign-up process using their mobile number, name & email address, they are free to explore the app and set up their investments. To start their investments, they need to complete their KYC verification process.”
He further explained, this can be done via Aadhaar or PAN card. The KYC verification process is entirely paperless, and requires users to enter their PAN number so that the app can check whether they are already KYC verified or not. If they are, no further action is required and the user can proceed to set up their bank account and start investment.
However, if the user’s PAN card is not KYC verified, they are required to complete the verification using their Aadhaar number. This is called the eKYC process and again, it requires no physical documents. Verification is done using Aadhaar-based OTP verification.
Novice investor: Watch out your investment behaviour
Investing through mobile apps in direct mutual funds is targeted at masses. Rastogi said, “Novice investors don’t understand the risks associated with investments, irrespective of the asset class. For example, most people believe that mutual funds are completely safe and give guaranteed returns like fixed deposits.”
This investors fail to understand the risks associated while investing in mutual fund schemes. So, when novice investors experience losses in the mutual fund portfolio, they will not consult any financial advisor and decide to exit at the lowest point of the investment holding cycle.
Rastogi added, “It’s important to note most of these mobile apps and inflows of money into direct mutual funds have come into existence in last 12-15 months. Both, debt and equity markets have not seen major downturn post Jan 2017; hence, these apps will only prove to be viable if financial crisis like 2008 occurs and investor still continue to invest and retain their investments through these mobile apps.”
Investors should consult with their financial advisors prior to investing through direct plans using mobile apps. It is important to understand the pros and drawbacks of the investments.
Faisal Rahman, Product Head, Coin, Zerodha said, “Mobile apps have made investing in direct plans a whole lot easier. It not only offers the convenience of investing on the go, but also the ability to track and manage the portfolio. This along with the fact that people can start investing in under 10 minutes if they are already KYC verified.”
Abhinav Angirish, Founder, investonline.in added, “Mobile app users now have a wide range of mutual fund schemes to select from as per their own requirement and goals. It also helps investors in smaller cities to divert their savings from cash or savings account to direct mutual fund plans.”
Angirish pointed out, “Investors could get biased advice from mutual fund apps. They are more exposed to the mutual fund schemes which app owners are advertising/promoting through recommended portfolio or as top funds. Further, mobile app investment services would be more generalised. Customer-based or customised services will not be there to better serve the users.”
Investors don’t get timely advice on investing in mutual fund schemes and they lack quality research by using mobile apps platform. Also, most apps don’t offer assessment to risk profiling for novice investors which helps them to select the mutual fund scheme as per risk appetite.
Some of the mobile apps are showing returns of mutual fund schemes as per their convenience i.e. only 1 year or 3 years despite scheme is existing for more than 5 years. Further, some of the apps are showing only 1 year performance while comparing with peers which represents incorrect image of the scheme against peers before investing.
There are mobile apps which are recommending best funds based on only last 1 year performances and information on risk ratios is not provided in the app for investors to analyse.
Some of this mobile apps are not updated on regular basis. There are errors in the stocks portfolio of several schemes as well as it still shows name of an old fund manager in schemes despite his exit from AMC few months back.
How this mobile apps are planning to monetise from investors?
Investment in direct mutual funds through this mobile apps is marketed as free for investors. But, there is an interest to earn from this investors in other ways by bringing them on their platform. So, be cautious while selecting any mobile app to invest.
Rastogi said, “The personal information can be used to solicit and cross-sell other products that entail good commissions for the platform such as for selling insurance schemes, offer loans or credit cards, etc.”