Direct investment plans of mutual funds are more likely to benefit the institutional and high networth individuals (HNIs) than retail investors. SEBI, in a regulation passed earlier in the year, had said that investors coming through the direct route will not be charged sales and distribution charges - that is the commission paid to the distributors - from January 01, 2013. The aim of this plan is to bring in more retail investors who are informed and are comfortable planning their own investments, said industry officials.

Direct investment plans (DIPs) of mutual funds allow investors to invest directly through the online platform of asset management companies (AMCs) or by physically submitting documents at the AMC or the collection/investor service centres. Currently all investors irrespective of their mode of entry are charged commission as well as the fund management fees. These are then deducted from the returns of the scheme and passed on to the AMC and the distributor.

In case of direct investors, the fund management fees and the commission are passed on to the AMC. The exclusion of the commission from the DIPs would mean higher returns and therefore a higher NAV.

“This (DIPs) is for those who do not need an advisor, like you and me, who are competent and who feel that they can invest on their own. The idea is very simple. (If) you think that you are competent to invest, you think you are competent to choose the scheme, you don’t need any advisor. Just because somebody is helping you in a transaction, why should he be paid?” said SEBI Chief U K Sinha at a recently held capital market summit.

But distributors said that it was unlikely that the retail would make a bee-line for the DIPs as the amount saved by not paying commission is not worth the time and effort.

Analysts said that the difference to the net asset value (NAV) of a scheme is expected to be in the range of around 50-75 basis points (bps). The commission is currently around 100-120 bps which would then come down to 50-45 bps. This means that from January for a NAV of Rs 10 per unit the investor, after deducting the fund management fees, would get Rs 9.50 or Rs 9.55 per unit, as opposed to Rs 8.80 – Rs 9.00 per unit earlier.

So for an investment of Rs 5000, an investor currently pays around Rs 50-60 as commission. This will now come down to Rs 22.50 - 25 leading to a net benefit of Rs 35 - 27.5. That distributors said is too small an incentive for investors.

“We will have to wait and watch to see what impact it would have in the short-run and how retail investors are going to react to it. But I think mutual fund investments for retail investors typically should come with distribution and advice,” said Vikaas Sachdeva, Chief Executive Officer, Edelweiss Asset Management Company.

However, for institutional investors with higher ticket sizes, the benefits would be much higher. According to September 2012 AMFI data, the average ticket size of an HNI is about Rs 20 lakhs. Institutional investors, who comprise bank, financial institutions and FIIs, have an average ticket size of Rs 10 crore.

“For an institutional investor, the benefit is definitely much more. With SEBI asking fund houses to merge the various plans under a scheme, like institutional and super-institutional plans, into a single plan, institutional investors would definitely take a look at the DIP route,’ said a distributor with a mid-size broking firm. The different plans within a scheme have different commission structures, benefiting the institutional players.

Fund analysts said that SEBI had taken away one benefit from the institutional investors, by merging the various plans into one, and given them another one in the form of DIP.

>sneha.p@thehindu.co.in

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