How Banks Could Be Costing NRIs Lakhs in Returns?

Mutual fund investment is one of the most popular options among NRIs to increase their wealth, but are you unknowingly missing out on lakhs of returns by blindly trusting your bank? In this article, the pitfalls of having all your trust in banks to invest in mutual funds are torn apart and how an impartial guide can be a game-changer in your portfolio’s performance.

Let’s dive further and learn how making wiser investments can reap the maximum possible potential of your investments.

The Hidden Cost of Bank-Advised Mutual Funds

When NRIs approach their bank for mutual fund advice, they often receive suggestions from the bank’s own asset management company. While these funds may seem trustworthy, they might not offer the best possible returns. Banks usually promote funds from their own parent company, limiting your options and leading to missed opportunities in other top-performing funds. In essence, you’re shopping at a single brand store when there’s a whole mall of options available.

Latest Developments: Most bank-managed NRI portfolios fell below industry par by a difference of 1.5% on average, which translated to huge lost earnings over time, as reported in a 2024 Economic Times article.

Independent Advisors Provide Broader Perspective

Independent advisors are not firm-specific asset management. They search the entire universe of mutual funds, evaluating the best funds of numerous firms and comparing them to your particular objectives. Advisors diversify your portfolio with emphasis on balanced asset allocation and risk control. This integrated approach is likely to generate greater returns and greater protection against market fluctuations.

Example: A study, completed just last month, showed independent adviser-managed portfolios performed 3 percentage points better on an annual basis than bank-advised portfolios over the past five years. Consider the example of a customer who had invested ₹95 lakhs in a bank-advised portfolio. His money was tied up in one asset management company, resulting in underperformance and even losses in some instances. Another customer, however, had invested ₹1 crore with an independent advisor in a diversified portfolio. In nine months, the latter portfolio earned ₹8 lakhs, while the bank-advised portfolio was still in the red.

Fact Check: As per SEBI, the differential return between diversified portfolios and single-AMC portfolios is between 1% to 5% annually.

Myth Busting: Are Mutual Funds Safe in Banks?

Most NRIs feel that banks offer a secure investment avenue. This is not true. Wherever you invest, whether with the bank or an independent consultant, your funds are invested in the same SEBI-regulated mutual funds, so there is no safety in either case. The actual distinction lies in the manner in which your portfolio is created—bank-controlled portfolios are not diversified and may not meet your goals.

Did You Know? SEBI regulations make sure that mutual fund investments wherever they are bought have the same safety features and investor protections.

The Power of Reconstructing Your Portfolio

If you have only been investing through your bank, it is now time to examine the performance of your portfolio closely. Contrast your performance against market norms and check whether you are diversified among multiple asset management companies. Independent advisers can assist in rebuilding your portfolio so that it matches your objectives and market conditions more closely.

Pro Tip: If you’re unsure about your portfolio’s performance, consider getting a professional review. A small tweak in asset allocation could significantly boost your returns.

Conclusion

Why Prime Wealth is Your Go-To Financial Advisor for NRIs With more than a decade of experience helping NRIs in investment management, at Prime Wealth, we feel that each investor has his/her own risk preferences and goals. Our experts with their expertise to design well-balanced high-achieving portfolios through research across the best-of-breed funds of different asset management companies create your financial tomorrow on the desired path. Our independent goal-directed advice puts you on the way to a fruitful financial future.

Don’t leave your hard-earned money on the table—call Prime Wealth today and let us demonstrate how to maximize your portfolio’s potential!

FAQs

1. What is the main difference between bank-advised and advisor-advised mutual funds?

Ans- Bank-advised funds are usually from the bank’s own asset management company, limiting your options. Independent advisors offer a broader range of funds from multiple companies, leading to better diversification and returns.

2. Are mutual funds bought through banks safer than those bought through advisors?

Ans- No, both bank-advised and advisor-advised mutual funds are regulated by SEBI, ensuring the same safety standards.

3. Can I diversify my portfolio if I invest through a bank?

Ans- While banks may offer some diversification, their advice is often limited to their own AMC, which might not provide the best diversification or returns.

4. How can an independent advisor improve my returns?

Ans- Independent advisors have access to a wider range of mutual funds, allowing them to tailor a portfolio to your specific goals and risk appetite, often resulting in higher returns.

5. Is it expensive to hire an independent advisor?

Ans- The cost varies, but the increased returns from better fund selection and asset allocation often outweigh the advisory fees.

6. How do independent advisors choose the right funds for me?

Ans- They analyze funds across all AMCs, looking at factors like fund manager performance, market trends, and your risk profile to create a personalized portfolio.

7. Can I switch from bank-advised funds to advisor-advised funds?

Ans- Yes, you can transfer your investments from a bank-advised portfolio to an advisor-advised one without selling your funds.

8. How often should I review my mutual fund portfolio?

Ans- It’s recommended to review your portfolio at least once a year or whenever there are significant market changes.

9. Are independent advisors SEBI-regulated?

Ans- Yes, independent financial advisors are SEBI-registered and adhere to strict regulatory guidelines.

10. How can I get a free portfolio review from Prime Wealth?

Ans- You can contact us through our website or WhatsApp for a free, no-obligation portfolio review.

Disclaimer: The information provided here is for educational and informational purposes only and should not be construed as financial, legal, or tax advice. Consult with a qualified professional before making any investment decisions. We do not accept any liability for errors or omissions in this information nor any direct, indirect, or consequential losses arising from its use.