Institutional players started to opt sensing saving in cost

Mutual fund retail investors do not appear to be rushing to shift their investments in equity related schemes to direct plans to save on distribution costs, not yet at least.

However, institutional investors, who predominantly park their investments in debt funds have taken to direct plan, probably because with the size of their investment being large even marginal saving in cost would work to be substantial.

According to a Crisil, the average assets under management of direct plans was nearly 15 per cent of the total industry’s AUM at the end of March 31.

A random analysis of the scheme-wise asset base of some of the popular equity schemes of three of the top fund houses — HDFC, ICICI Prudential and Franklin Templeton — shows that to a large extent investors have stuck to their present mode of investment in them. However, this is not to generalise that the experience of the entire industry might be similar.

In fact, even among these three, Franklin Bluechip Fund has seen a significant asset flow into its direct plan. To a lesser extent, this was true of HDFC Equity Fund whose direct plan (growth) also has sizeable corpus.

HDFC MF’s Top 200 Fund, with a total corpus of about Rs 12,015 crore, is probably the single largest equity MF scheme in the country. While the regular plan’s growth option had a corpus of Rs 8,525.72 crore, the fund size of the dividend option was Rs 3,433.08 crore. However, the corpus of dividend option under direct plan was Rs 12.92 crore, while its growth option had Rs 45.13 crore in assets.

This trend was noticeable under other schemes of HDFC MF — HDFC Prudence Fund, Mid Cap Opportunities Fund, HDFC Growth Fund and HDFC Tax Saver — too.

In ICICI Prudential MF’s Balanced Fund and Focused Bluechip schemes also investors appear to be content with the existing mode. While the Balanced Fund’s regular plan dividend option had a corpus of Rs 159.72 crore, the size of the growth option was Rs 286.95 crore. But under the direct plan, the figures are Rs 17.38 lakh and Rs 64.74 lakh only.

Franklin India Prima and Prima Plus both continued to have sizeable corpus under the regular plans. While Prima Plus fund’s dividend option was of Rs 1,025.41 crore in size, the growth option had a corpus of Rs 922.06 crore. But the direct plan under both options had only a small corpus of Rs 1.66 crore and Rs 3.51 crore respectively. It was only Franklin’s flagship scheme Bluechip Fund which showed a different picture. As against Bluechip Fund’s corpus of Rs 1,723.46 crore (dividend options) and Rs 2,588.75 crore, the direct plan had many votaries as its corpus showed Rs 829.66 crore in assets. But assets of dividend option was modest at Rs 8.29 crore, implying that long-term investors, who were looking to benefit from compounding effect, were conscious of even small saving in annual fee pushing up the fund NAV.

But it may be a little too early to assess the impact of the launch of the direct plan as it was introduced only from January 1. With all things being equal between regular and direct plans, the latter would have lower expense ratio excluding distribution expenses, commission etc and no commission would be charged.

(This article was published on April 5, 2013)
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