Own the Businesses — In Your Own Name

Most people who own equity in India own it twice removed. You put money into a mutual fund; the fund owns units of a pool; the pool owns the companies. You are a holder of units of a fund — not an owner of Reliance, or Infosys, or the businesses themselves. For a great many investors, that is perfectly sensible. It is worth being honest about why.

Pooled funds do real things well. They give instant diversification for a few thousand rupees. They ask nothing of you — someone else decides, someone else rebalances, someone else worries. For a first portfolio, a busy professional, or money you simply don't want to think about, that simplicity is a genuine service, not a compromise.

But it is worth understanding what you trade away for it — because the alternative is not exotic, and it is not only for the ultra-wealthy. The alternative is simply to own the shares directly, in your own name, in your own demat account.

Here is what actually changes when you do.

You own the companies, not a slice of a fund. The shares sit in your account, on your statement, registered to you. You can see every holding and every transaction — not a periodic disclosure, but the real thing, continuously. Nothing is embedded, pooled, or averaged across a million other unit-holders.

The tax is in your hands. In a fund, decisions made for the pool can create tax events you didn't choose. When you own the shares directly, you decide when a gain is realised, whether to harvest a loss, how to sequence things around your own situation. The tax outcome becomes something you manage, not something handed to you.

The portfolio can actually be yours. A fund is, by design, the same portfolio for everyone in it. Direct ownership can reflect what you believe, what you already hold, what you want to avoid — it can be concentrated where there's conviction rather than diversified into forgettability.

And the costs are visible. In a fund, the fee lives inside the NAV — you rarely feel it, which is precisely why it's easy not to question. When you own directly, what you pay is a line you can see.

Which brings up the objection worth meeting head-on: isn't owning directly more expensive? Put the two side by side and a fund's annual expense ratio often looks like the cheaper number. But that comparison assumes the expense ratio is the whole cost, and it isn't — it is the part that has been written down.

Sitting outside it are the scheme's own dealing costs: the brokerage and the transaction taxes on every trade the fund itself makes, borne by the pool and netted quietly into the NAV. There is the tax realised inside the pool when it churns — on a schedule you didn't choose and can't time. There may be an exit load if you leave earlier than the scheme intends. And when you do redeem, you accept the day's computed NAV: you don't pick your price. None of this is a scandal, and none of it is hidden in any dishonest sense. It simply never appears on the fee line, while all of it comes out of your return.

So the honest comparison is all-in — what actually reaches you after everything, including the costs nobody itemises. On that basis the gap narrows considerably. And for a portfolio that is held rather than traded, it can close altogether, because the main cost of owning directly is the cost of transacting — and if you are not transacting, you are not paying it. The expensive-looking option turns out to be expensive mainly in proportion to how much you churn it.

There is one more item that belongs on the list even though nobody ever invoices for it: what it costs you to have less control. Owning directly, you choose the day, the price and the quantity — and you can see everything while you decide. That isn't sentiment. It is what stops a cost being imposed on you at the moment you can least afford it, and it is the part of the bargain that most reliably repays a visible fee.

There is a deeper point underneath all of this, and it's about incentives. Much of the world's asset management industry is paid a percentage of your assets, every year, forever. That is a fine business. But it quietly rewards gathering assets over tending the portfolio. A model built instead on a handful of high-conviction decisions a year — where the relationship earns its keep through the ordinary economics of being your broker, not a levy on the size of your wealth — points the incentive somewhere different: at the portfolio, not the pile.

And your compounding is left to run uninterrupted. This is the quiet advantage, and it may be the one that matters most — and the hardest to feel while it is happening. Charlie Munger placed it near the centre of everything: “understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things.” Money grows fastest when it is left alone, when as little as possible is skimmed away along the road. A pooled fund interrupts that in two ways you seldom see: it charges a fee against the entire pool every single year, and it buys and sells within the pool on its own schedule, realising gains — and the tax on them — that you never chose. Each rupee handed over in fees or premature tax is a rupee that stops compounding for you, permanently.

Own the shares directly and simply hold them, and the fee is small and visible while the tax stays deferred until you decide to sell — so the whole sum, including the tax you have not yet paid, keeps working for you year after year. As one careful study of history's great long-term investors puts it, “capital will grow more rapidly if earnings compound with as few interruptions for commissions and tax bites as possible.” Or, more simply, in the words of the investor Guy Spier: “Long-term compounding is an investor's best friend, so why get in its way?”

Finally, ownership changes you. It is very hard to panic-sell a business you understand and chose. It is very easy to redeem a fund unit you never really knew. Owning the actual companies tends to pull an investor toward the one behaviour that compounds wealth more reliably than any strategy — patience. You start to hold like an owner, because you are one.

None of this makes pooled funds wrong. For most people, most of the time, a low-cost fund is a fine answer, and anyone who tells you otherwise is selling something. But if you have reached the point where you'd rather own the businesses than rent exposure to them — where you want to see everything, control your own tax, hold a portfolio that is genuinely yours, and work with someone whose incentives sit beside yours rather than on top of your assets — then it is worth knowing that this path exists, and that it is more accessible than most investors assume.

The shares can be in your own name. It changes more than it sounds like it would.

Vimal & Sons — Member, NSE (Cash Segment), SEBI Reg. INZ000270222. This note is for educational purposes only and is not investment, tax, or legal advice. Investments in the securities market are subject to market risks; read all related documents carefully before investing.