Institutional investors like banks, insurance companies and even some corporates have taken the lead in switching to direct plans for their mutual fund investments into liquid and liquid plus funds. Direct plans, which became operational this year, allow investors to bypass distributors and save on commission which, in turn, will reflect in lower expense ratio for the concerned direct schemes.
?Banks, insurance companies and a few corporates with large treasuries have already gone direct,? said a distributor who caters to institutional clients. ?Earlier, some banks did go direct, but there was not much benefit in terms of savings,? he added.
Till recently, many banks used to route their transactions through other banks, using their ARN (Amfi Registration Number) code.
While some corporates have begun going direct, others are awaiting approvals to do so, according to market observers. ?Some of the corporates who were investing directly through regular plans have switched to the direct plans to avail of the lower expense ratio,? said Sunil Jhaveri, chairman, MSJ Capital, a debt distributor. ?Corporates who are currently using the advisory model to invest may also route a portion of their investments through the direct route. This will impact the business of debt distributors like us,? added Jhaveri.
Institutions are hoping to save anywhere between 5-10 bps on investments into liquid funds and anywhere between 25-50 bps on investments into 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.
The switch to direct plans has so far been restricted to liquid and liquid-plus funds but things may change soon. ?Investing into duration funds seems to be the flavour of the season and there is a possibility that some of that money will soon shift to the direct mode,? said Jhaveri. However, market participants believe that investing into duration funds takes a fair bit of research, which is why corporates will need some advice.
Of a universe of 214 diversified equity schemes, 78 direct schemes have seen their NAV rise higher by 1 bps or more, according to data collated by Value Research. Of these 78 schemes, 23 had seen a rise of more than 2 bps. This difference in NAV will only increase with time, said experts, which could also prompt several high net worth individuals to turn to direct plans.
AMCs had been asked 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 a 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.
