A friend called me today with this question “I am checking my investment in a mutual fund. The NAV shown in the AMC website is different from the NAV shown in Zerodha coin app. Why is this difference?” I explained to him that his investment is probably in a regular plan which is why the AMC website shows a lower NAV compared to the Direct plan NAV displayed in the Coin App. He persisted “How can one fund have different NAVs? Should it not be the same on all websites and apps?” I explained to him that the Direct plans have been started by SEBI in 2013 and since then every mutual fund has 2 plans, the regular plan and the direct plan. The regular plan will always have a lower NAV as its expense includes the commission paid to the distributors.
My friend is an upper middle-class self-employed professional in Bangalore. When he can be unaware of the difference between regular plan and direct plan, then we can understand how many investors in our country are totally unaware of this difference. Most Mutual fund distributors never have any disclosures. At the most they may inform that there is a small commission they receive. And this “small” commission will not make any difference to their fund returns. Instead their expertise in fund selection will more than offset this commission. Let us check out how much my friend has lost by investing through this distributor. He had invested a lump sum of Rs. 15 Lakhs in March 2016 in ICICI Prudential Bluechip fund. The table below illustrates the difference in market value between direct plan and regular plan.
As you can see, the longer you are invested in regular plans, the more is the loss. This is the real cost of free advise received from the distributor. There is no free lunch!