In a clear sign that mutual fund investors are warming up to the concept of direct plans, nearly 25 per cent of assets under management (AUM) of the industry is now under direct plan option.
The growing popularity of this option could be judged from the fact that the AUM of debt funds, barring liquid and ultra short term funds, under direct plans had nearly tripled during the quarter ending June, compared with the previous quarter, a study by CRISIL Research has shown.
In a report, Crisil said the asset base of MFs under this plan had gone up nearly 70 per cent (Rs 87,300 crore) to Rs 2.14 lakh crore in the three months ending June from Rs 1.27 lakh crore in the quarter ending March. Crisil said direct plans now constituted 25 per cent of the asset base compared with 15 per cent in the previous quarter, with nearly 98 per cent of direct plan AUMs coming from debt funds.
Institutions lap up
The direct plans of MFs have seen an exponential growth since they were launched on January 1 after SEBI mandated this so that investors could save on distributor costs.
More than retail investors, big ticket players in the debt funds segment, such as institutional investors, seem to have lapped it up because of the huge savings in cost.
These plans offer direct access to mutual funds, bypassing intermediaries (distributors). This leads to savings in costs, which in turn results in higher NAV compared with regular plans.
In the June quarter, the long term income funds category under the direct plans outperformed the regular schemes by 0.76 percentage points on an annualised basis, followed by Equity Linked Savings Schemes by 0.65 percentage points.
According to Sandeep Sabharwal, Senior Director — Crisil Research, the lower costs in direct plans had resulted in higher returns for the investors since there were no distribution costs. He said it was possible that “more institutional investors and high net worth individuals” might move to direct plans as these investors “are far more capable at taking informed investment decisions”.
But it may not be long before retail investors also take to direct plans. He felt that retail investors may begin shifting to direct plans once awareness about the benefits of direct investment spreads and for which MF rankings could become handy.