Why we built it this way

Summary: A PMS firm posted about its own structure. The investors in the replies brought their calculators. The numbers didn't hold up. And the anatomy of why reveals something important about every investment service that makes money when you do.

A co-founder of a Mutual Fund PMS firm posted on X last week, sharing an article that praised his own structure. The investors in the replies had brought their calculators. The numbers did not look good for PMS, the discussion lengthened, and a few days later, it became the angriest column I have written this year. The newspaper headline was “The compounding killers.”

The job there was to puncture a marketing narrative for the general reader. The job here, in front of Mutual Fund Insight readers, is the opposite. It is to explain, as plainly as I can, why our service has the shape it has.

Because almost every design choice in the Value Research Fund Advisor is a deliberate rejection of the very things that make Mutual Fund PMS such a poor deal.

Start with cost, the simplest of the three problems. A direct mutual fund already runs at 0.5 to 1 per cent for an equity fund. The PMS sits on top and adds its own fee, often in the form of a profit share of 10 or 20 per cent on returns above a threshold. On a portfolio earning 12 to 14 per cent a year, that hands the manager two to three percentage points of return. A compound that dragged for 20 years on a Rs 1 crore corpus, and the gap between paying it and not paying it is close to Rs 3 crore. No investment skill is required to widen that gap. It is built into the structure.

The second problem is tax. When a PMS manager rebalances by selling one scheme and buying another, the rebalancing happens in your demat account. Every switch is a redemption. Every redemption is a taxable event. A direct mutual fund portfolio, by contrast, can sit untouched for decades while the manager rebalances inside the scheme without triggering tax for you. The PMS structure converts a tax-efficient vehicle into a tax-inefficient one, and the cost is invisible until you do the maths.

The third problem, and the most damaging, is the incentive. A profit share without real downside for the manager is not alignment.

It is a one-way bet. If your portfolio rises, the manager earns handsomely. If it falls, the manager earns nothing, but the manager also loses nothing. The asymmetry shapes behaviour. The manager has every reason to chase short-term performance, to switch out of a fund going through a dull patch, to demonstrate activity. Your actual edge as an investor is sitting still through the boring middle while a good fund recovers, precisely the behaviour this structure punishes.

That is the diagnosis. Now to the prescription, which is the reason Value Research Fund Advisor exists in its current form.

We charge a flat fee. No profit share. No commission from any fund house. No hidden bouquet of upfront and trailing charges layered into your investment. A year of Fund Advisor costs less than Rs 5,000, and the trial begins at Rs 490. Whether you invest Rs 5 lakh or Rs 50 lakh, the fee does not change. This is not a marketing position. It is the only structure under which our interests and yours can run in the same direction. If your portfolio grows, we do not earn more. If it shrinks, we do not earn less. What we earn depends on whether you find our advice useful enough to renew. That is the only test that matters.

We help you transact only in direct plans. The direct plan of an equity fund saves you around 1 per cent in expense ratio each year compared with the regular plan, and over a long holding period, that 1 per cent adds up to a remarkably large amount. There is no distributor commission baked in because there is no distributor. You hold the units directly with the fund house, in your own name, and you can leave whenever you like.

Crucially, we do not take custody of your investments. There is no separate demat account. There is no wrapper sitting between you and the funds you own. When our analysts upgrade or downgrade a scheme, we say so through our Buy, Sell, Hold and Avoid opinions, and through the Analyst’s Choice list of our highest-conviction recommendations. You decide whether to act. If you do act, you act on your own timetable, with full visibility on the tax consequences. There is no manager somewhere churning your portfolio to justify a quarterly performance number. The only person who can churn your portfolio is you. And we spend a fair bit of effort gently persuading you not to.

What you get instead is the machinery that helps you do the right thing without effort. Portfolio Planner builds a personalised set of recommendations from your goals, time frame and risk appetite. Portfolio Analysis takes whatever you already own, across up to six members of your family in a single account, and tells you, parameter by parameter, what is working and what is not. Fund Advisor Live, our monthly session, lets you bring your questions directly to my colleagues and me. None of this is sold as alpha. It is sold as the thing that actually compounds investor wealth over decades, which is good behaviour supported by good information.

I closed that newspaper column by saying that the right approach is to leave compounding alone and let it do what it does best. Fund Advisor, in essence, is an attempt to industrialise that one sentence. We have spent years building a service that stays out of compounding’s way while making sure you do too. The annual subscription is a small price to pay for a structure that, by its very design, cannot work against you. Take the Rs 490 trial and bring in your existing portfolio. You may well find that what you most needed was not another layer of overcleverness on top of your investments, but the absence of one.

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