Why Goalwise does not offer direct plans

We like the idea of Direct plans and transparency.

To that extent, we don't claim to be free of cost (unlike several other popular regular Mutual Fund platforms), we have disclosed all the commissions we get from different Mutual Funds and we have even made our own investments public to all Goalwise users.

But currently we don't provide Direct plans. This is because:

a) It is difficult to manage fee collection and charge users upfront - it adds a lot of friction in the product usage and there are a lot of instances of non-payment of fees. All the existing direct platforms are struggling with this.

b) On average you pay only ~0.6% per year as commissions - less than half of the exaggerated figures of 1.5-2% that keep getting bandied around in the media.

Commissions on Equity funds are about 1% per year and for Debt funds are 0.2% per year. On average, for a moderate risk profile investor, this turns out to be around 0.6% per year.

There is not enough scope to go much lower today. May be after 8-10 years when the Mutual Fund industry has a higher penetration and all of you are investing crores of rupees in Mutual Funds there will be, but not right now. (Amen! :D)

So even if we were to provide direct funds, we would end up charging you about the same. Taking on the extra hassle of fee-collection and accounting on ourselves for essentially the same outcome doesn't make much sense.

c) You get 3-5% more than what you would on your own. That too after fees.

  • Our Mutual Fund selections, rebalancing etc helps investors earn higher returns by 3-4% than if they would have done it themselves.

  • If you are not careful, you may end up paying 1-2% in exit-loads and taxes during redemption and rebalancing on your own. Our tax-aware algorithms save you from such mistakes automatically.

  • Our financial planning helps you get on track to meet your financial goals without making any ad-hoc loss-making decisions.

It is possible that you don't need the level of service/features we provide, are confident of achieving the same outcomes without our help and just need a transactional platform in which case you can go for a DIY set up of direct plans.

But for the majority of us this will not be true, in which case ~0.6% per year is a small fee to pay to have the best investment advice and management at your disposal.

As an investor myself, I don't think that when I have, say, Rs 50 lakhs of investments, just paying Rs 100 or 200 per month will get me the attention my money or goals require.

So will Goalwise never provide Direct plans?

Any sustainable business of wealth management has to be % based (even if one provides direct plans).

Even in developed countries with very high investment volumes and low transaction costs, a flat fee model doesn't exist. They all charge a % of amount invested.

We believe that the Indian market is still at least 2-3 years away from figuring out a sustainable pricing model for investment management with Direct plans and people being comfortable paying upfront for it.

Once that happens, we'll happily flip the switch and move to providing Direct plans.

Until then, instead of focusing on regular vs direct, we want to focus on providing the best investment product and service.

We will be happy to hear your thoughts in the comments below. :)

Note: At one point we were thinking of introducing Direct plans by the end of this financial year and charge the same % fee but after doing some leg-work it seems like this would just end up adding un-necessary frictions of managing the fee payments without making any other difference anywhere so we are not going ahead with it.