The share of direct plans stood at 33% of the industry?s AUM (excluding fund of funds) at the end of September quarter.
Institutional investors like banks, insurance companies and a few corporates have taken the lead in switching to direct plans. Direct plans allow investors to bypass distributors and save on commission, which in turn will reflect in lower expense ratio for the concerned direct schemes.
Institutions are hoping to save anywhere between 5 and 10 bps on investments in liquid funds and anywhere between 25 and 50 bps on investments in duration funds such as income funds and dynamic bond funds, said experts. About 80% of the debt institutional investment is in liquid and liquid-plus funds, they said.
Investors, especially retail and high net worth individuals (HNIs), who invest in equity funds, stand to benefit from the difference in expense ratio if they go direct. According to market participants, the impact of this lower expense ratio on NAV will be minuscule in the initial stages, but will become significant after a year or two. According to estimates, the gap in expense ratio for debt schemes might be 10-15 bps while that for equity schemes might be 75-100 bps, a significant difference for long-term investors.
?I believe direct plans should be used more by institutional investors who are capable to taking decisions on their own,? said G Pradeepkumar, CEO, Union KBC MF. He added retail investors, on other hand, would continue to seek the help of advisers.
Direct plans as a percentage of the industry’s overall AUM is expected to rise further. Distributors fear the ‘direct option’ provided to investors via Amfi’s new upcoming online platform coupled with the ease of transaction on the platform, could fuel the migration to direct plans among retail investors and high net worth individuals. Amfi is awaiting a final nod from Sebi before throwing open the platform MF Utility to investors.
AMCs had been told to provide a separate plan for direct investments in existing as well as new schemes by January 1, 2013, as per a Sebi circular last year. The circular had said such separate plan shall have a lower expense ratio, excluding distribution expenses and commission, and no commission be paid from such plans. The plan shall also have a separate NAV.
