Wednesday, September 2, 2009

What you can do with mutual fund's high fee ?

It was mentioned that Mutual Fund is one of the few personal finance tools that can provide highest return passively. (A) There are a lot of other venues that can provide higher return but they require much more active effort than mutual fund. (B) There are also a lot of other tools that is more passive than mutual fund, but their returns are not high. (C) There are also some solutions that provide both high return passively but they are NOT personal tools.

However, even the best tool in the world can be a disaster when used wrongly. Mutual fund is no exception. The right way to use mutual fund in your personal finance is;

2. choose the largest or most active fund ( In Malaysia, the only choice is Public Mutual )
4. adopt Buy and Keep, not Buy and Sell. Buy and Switch, however, is a good alternative between the two.

Any activities other than above may stop you from using mutual fund to

1. provide the highest return
2. passively
3. personal tools

With that in place, the only challenge left is its high fee. Although there are many justification on the fee, the future for mutual fund industry is actually the continous effort to streamline this service charge. There are 2 ways to do that;

1. Provide more values from the same high fee or
2. Cut to lower fee by streamlining distribution channels.

The good news in Malaysia is, there are already distinctive winners in both strategies. Public Mutual will continue to provide more values to its investors, the significant threshold is MYR 100,000 where you become a Mutual Gold member to rip those benefits out of the service charges you paid.

On the other hand, Fundsupermart is the winner in low fee funds. However, Fundsupermart is NOT a fund manager. They only provide a trading platform for fund managers to distribute their low fee funds. Buying and Selling funds in fundsupermart is a totally whole new concept comparing to traditional methods. Hence do take sometime to learn and realize what you have given away when paying the lower fee. Whatever result you get in future is the action you take now, its all you now and no one else to blame.

What else can you do if you want to invest with mutual fund but want to minimize the high fee impact ?

Join the industry to promote mutual fund as an agent. All agents get paid in commissions. If you buy from yourself, part of the service charges you paid goes back to yourself. It may not be easy as this actually require a lot more effort to get qualify etc. But the knowledge and experience stay with you.

So in contrast to mutual fund's service charges, you can;
1. rip more values from your fund managers - Public Mutual Gold
2. buy lower fee funds - Fundsupermart
3. buy from yourself - ...

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wankongyew said...

Hmm, I'm a Mutual Gold member but what additional benefits are you referring to when talking about amortizing the high fees?

Michael Tsen said...

the best person to answer you is your agent or you should drop by one of the mutual gold centers for that. There are magazines, free switchs, free trust and will writting, dedicated call line etc.

Daniel Chew said...

I certainly agree that you can reduce your service charge by becoming an agent yourself. I am doing that :)

Michael Tsen said...

good to hear :)