While the direct mode of investment is yet to catch up, a recent AMFI data on investor behaviour revealed that only 9% of the retail investors chose to invest through mutual funds in FY 2016-17.
Direct plans, however, are more popular among institutional and corporate investors. AMFI data shows that institutions and corporates use the direct channel for 80% and 60% of their total transactions, respectively. In addition, 16.62% of HNIs assets came through direct investments in FY 2016-17.
Overall, 42.04% of the assets of the mutual fund industry came directly during the last fiscal. A large proportion of direct investments were by institutional investors, the AMFI data shows.
AMFI also analysed the inflows in various scheme types and found that the direct mode is most preferred for investing in ETFs and FOFs investing overseas, where more than 70% of the investment is through the direct mode. In equity investments, though, the distributor channel seems to be more preferred with more than 80% of the inflows coming through distributors.
The study observes that 68% of liquid/money market scheme assets, where institutional investors dominate, were direct. Schemes where individual investors dominate, like debt and equity oriented schemes, saw only 47% and 15% of direct investments, respectively.
“The proportion of direct investments in equity to the total assets held by individual investors was about 5.56% in March 2017,” says AMFI.
Commenting on why direct investments have found favour with institutional investors and not with individual investors, Sadique Neelgund of Network FP says, “There are two major reasons for this; institutional investors have in-house resources to compare and evaluate funds best suited to them. On the other hand, individual investors largely depend on advisors for this knowledge. In addition, by hiring an advisor, they can ensure that their investments are regularly monitored and taken care of.”
Suresh Sadagopan of Ladder7 Financial Advisories adds that with the huge sums invested by institutions, the difference between investing through direct and regular is rather significant. “Since they usually have a dedicated person with the necessary knowledge in-house, direct plans are more viable for institutional investors. However, in the case of retail investors, not many have knowledge of mutual funds and hence agree to invest with whichever distributor manages to convince them. Unless an individual approaches a fee-only advisor, his/her investments usually go through the regular channel,” he says.
