Mutual fund investors are increasingly bypassing distributors and buying their units directly from a fund house. Since their introduction in January 2013, direct plans of mutual funds have been steadily gaining market share, according to data from industry association AMFI and rating agency Crisil.

They now account for a third of all money managed by Indian mutual funds.

From just 15 per cent in the March 2013 quarter, the share of direct plans in mutual fund assets crept up to 26 per cent in the September 2013 quarter. This further increased to 33 per cent in the latest, September 2014, quarter. In less than two years, direct plans have more than doubled their share.

Saving costs The growing popularity of direct plans stems from a simple fact — they give investors better returns as the fund saves on the commission payable to the intermediary.

This translates into a higher net asset value (NAV) in direct plans.

The commission to intermediaries varies from 0.05-0.10 per cent of the NAV each year in liquid funds, 0.4-0.5 per cent in debt funds, and as much as 1 per cent in the case of equity funds. Compound these over a 5-10 year period, and direct plan investors could earn significantly more.

The category where direct plans have gained the most traction is fixed maturity plans (FMPs), accounting for more than half of the assets under management, up from just about 8 per cent in the March 2013 quarter.

In liquid/money market funds, too, direct plans’ share has risen to 57 per cent from 43 per cent in the March 2013 quarter.

These fund categories are dominated by companies, high net worth individuals and institutions — a set that is informed well enough to select its own schemes from the vast array on offer from funds.

This group accounts for the lion’s share (more than 70 per cent) of the total direct plan assets.

“The increasing share of direct plans within liquid funds and FMPs indicates that primarily institutional investors are opting for direct plans,” says Jiju Vidyadharan, Director – Funds and Fixed Income, Crisil Research. AMFI does not disclose investor category-wise data for direct plans.

Direct plans have also steadily grown their share in other debt fund categories such as income funds, ultra short-term funds and gilt funds — from 8-20 per cent of assets under management in the March 2013 quarter to 21-39 per cent in the recent September quarter.

In these segments too, it is the informed investor categories that account for the chunk of the portfolio.

Retail interest But retail interest in direct plans has been rising too.

In equity funds, in which retail investors participate in a big way, direct plans’ share has increased to more than 6 per cent from just 1.3 per cent in the March 2013 quarter and 3 per cent in the September 2013 period.

Jimmy Patel, CEO of Quantum AMC, a fund house which does not empanel any distributors and offers only direct plans, confirms that in equity schemes many retail investors are now switching to direct plans.

It is investors in the big cities who have taken to direct investing more readily.

A recent analysis by Cafemutual, a leading portal for mutual fund distributors, found that a large part (74 per cent) of assets under management in direct plans in the equity category came from the top 15 cities.

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