You buy an air ticket, which costs Rs 6,000, for which the airline will fly you from Delhi to Mumbai. The nature of the transaction is clear in your mind. give you airline Pennies And the airline uses that money to fly your flight from one city to another. Consider an alternative situation. When you reach the airport you have to pay Rs.300 to enter the airport. You also have to pay to the government, like Rs 2,700 separately for tax on fuel and then for GST. However, the airline ticket costs only Rs 3,000. Basically there is no difference between the two situations.

However, the nature of the transaction you have in mind is completely different. It becomes clear to you that the airline you are spending on aircraft, pilots, fuel and more is doing an almost heroic act and that the money you are paying is going somewhere else. The airline is basically a collection agent for various other entities. If you start paying for each part separately, a lot will become clear.

Let’s apply this principle to some financial services. You buy an insurance policy, a ULIP or a traditional policy. You pay a fixed amount and you get some combination of life insurance and future investment value out of it. It is very difficult to understand what part of the service was worth it and what was not. Now imagine that each part of the money you paid was billed separately and paid separately according to its usage. The money you pay for such a policy roughly goes into four buckets. Some are used for life cover for you. Something is an investment, which you will eventually (hopefully) get back at the increased value. Some are paid to the agent as commission and some are retained by the insurance company for their own expenses and profits.

Let’s say you were billed for each separately. Every year, instead of paying Rs 2 lakh under one head, you paid in separate transactions for each of the above four components. My guess is that you will become a smarter buyer of insurance products and that insurance companies and agents will have a more difficult time selling you.

Now consider mutual funds. mutual funds Charge a fixed expense to manage your money. This is a percentage of the total value of your investment and ranges from roughly nothing to about 2.5%. for actively managed share It is definitely towards the higher end of the range. Unless you dig into the communications the fund sends you or have a research mindset and spend time on price research online, you have little to no chance of giving the mutual fund company your money. How much are you paying to manage and is it worth it.

This is because a small amount of expenses are deducted from your NAV every single day. This makes them invisible to you. Suppose the rules were different. Let’s say your NAV reflects the actual investment value and the fund company bills you quarterly for expenses. I know it will be very cumbersome but this is a thought experiment so please bear with me. Now every quarter your thinking would go like this: I have Rs 10 lakh in this fund, on which they gave a return of Rs 30,000 and now they have sent me a bill of Rs 5,000. That’s why they want one-sixth of the money back! To make Rs 30,000 they are charging Rs 5,000. Note that these are real numbers, in fact they are on the optimistic side. There will also be quarters when the fund company will lose you money and then bill you for that ‘service’.

What if that actually happened is that you would mentally calculate expenses as a percentage of profit, while the financial industry (all parts of it, not just mutual funds) wants to charge you as a percentage of total money , including part. that was always yours.

I am not going to present a closing view in this column. I’ve left it here for you to take a look at what I wrote and let me know what you think. In a week or two, after digesting what people have to say, we’ll come back to the topic.

(The writer is CEO, Value Research)