A bank is a distributor, not a fund house
Worth being precise about, because it determines what you are actually buying.
Most public sector banks, Punjab National Bank included, act as distributors of mutual funds. They do not manage the schemes. When you start a SIP through a bank branch or its app, you are buying a scheme run by an asset management company, through the bank as an intermediary.
That intermediary is paid, and it is paid out of the scheme you bought.
Regular and direct plans
Every mutual fund scheme is available in two versions:
- A regular plan, bought through a distributor, whose expense ratio includes a trail commission paid to that distributor for as long as you hold the units
- A direct plan, bought from the AMC directly or through a platform that takes no commission, with a lower expense ratio
Same portfolio. Same fund manager. Same holdings, same NAV movements. The only difference is the fee deducted from NAV each day, typically 0.5% to 1% a year for an equity scheme.
What that difference is worth
Use the calculator to see it rather than taking it on faith. Run ₹10,000 a month for twenty years, first at 12% and then at 11%.
The gap between those two results is approximately what a regular plan costs over that period. It is usually in the lakhs, and for longer horizons and larger instalments it can exceed the total amount contributed in the early years.
This matters more than almost any other decision available to you, because it is certain. The market return is unknown; the fee is known in advance and applies every single year.
When a regular plan is defensible
Not never. A distributor earning that trail may be doing real work: helping you choose appropriately, completing the paperwork, keeping you invested through a fall. The last of those is worth a great deal, and investors who abandon a SIP during a drawdown typically lose far more than a commission.
The question is simply whether you are receiving that service. If someone genuinely advises you and you would otherwise not invest at all, the cost may be fair. If you are using the app because it is already on your phone, you are paying for distribution you are not getting.
Switching from regular to direct
Possible, with two things to check first. A switch is a redemption and a fresh purchase, so it can trigger capital gains tax and, if the units are recent, an exit load. For an ELSS scheme, units cannot be switched until the three-year lock-in has passed.
A common approach is to leave existing units where they are and direct new instalments into the direct plan, which avoids a tax event while stopping the commission on everything from that point forward.
How to use this calculator
- Enter the monthly investment.
- Set an expected return rate for the scheme category, and reduce it by the expense ratio of the plan you are actually buying.
- Set the time period.
- Run it once with the regular plan's effective rate and once with the direct plan's, and compare.
What is excluded
The result is gross of expense ratio, exit load and tax. Equity gains above ₹1.25 lakh in a financial year are taxable, and each SIP instalment carries its own holding period.