Direct Plans & the Coconut Tree

Moneylife Digital Team 24 August 2017

Life

Investors can buy mutual fund schemes directly and save on commissions or they can go through a distributor and save the hassles of doing it all by themselves. There are pros and cons for both options. But distributors are under attack by the market regulator, even though they are the ones who funnel the money into mutual funds. Once in a while, a distributor gets worked up enough and hits back. Manoj Nagpal, a successful distributor, penned the following story about the folly of investors trying to save money on commissions by going direct.

“Swamy goes to buy a coconut from the shop. The shopkeeper tells him that the coconut price is Rs40.

Swamy: Where can I get it cheaper?

Shopkeeper: If you go to the wholesale market, you will get it cheaper.Swamy goes to the wholesale market.

Swamy: How much is the coconut?

Wholesaler: Rs36.

Swamy: Wow, 10% cheaper. But where can I get it cheaper?

Wholesaler: At the coconut farm.Swamy goes to the coconut farm. Outside the farm, there is a farm shop.The man at the farm shop tells him a coconut costs Rs25.

Swamy: Where can I get it cheaper?

Farm Shop: You climb the tree and take it yourself; you can have it for Rs15.

Very happy, Swamy looks at the coconut tree and sees that the farm workers easily climb the tree. Swamy thinks “If these farm workers can easily climb the tree, so can I. Doesn’t look so difficult.” Swamy starts climbing and reaches half-way. Very happy, he starts moving up faster. At the top, as he tries to grab a coconut, he loses his balance and is about to fall. Luckily, he manages to hold on to the coconut. The coconut snaps and he falls down with the coconut. He fractures his leg but is happy that he saved money on buying the coconut! Are you like Swamy trying to buy mutual funds directly?”

Predictably, this raised the hackles of those who do not use distributors. There has been a blog post criticising the analogy. One of the choicest comments on it was this, by one Rahul Chaudhuri: “I bought coconut from a shopkeeper for Rs40, but it didn’t contain much water! When I asked him about it he said: ‘Sir, mai thodi andar ja ke dekh sakta!”’ Distributors will find it hard to counter it.

Comments

User

Abhishek Singh

9 years ago

Direct plan is buying from Farm shop and climbing tree for coconut is equivalent to directly investing in equity, if you know about it then only climb...

SuchindranathAiyerS

9 years ago

What is to become of the Aadhar that Nilekani sold to the Khangress, and which like all the despicable Khangress policies, the BJP championed with such enthusiasm, vigour and rigour?