The availability of online platforms has increased the popularity of direct investments. According to a study done by Karvy, the share of direct investments in overall AUM has increased from 17% to 48% from the time direct plans have introduced.
The growing popularity of direct plans has affected the market share of IFAs. The study reveals further that IFAs share in MF AUM has dropped from 25% in March 2011 to 19% in November 2016. The trend is even more apparent in equity segment where the market share of IFAs has decreased from a whopping 51% in March 2011 to 39% in November 2016 while the investments in direct plans have increased from 6% to 19%.
However, in absolute terms, the contribution of IFAs in AUM has increased from Rs.65000 crore to Rs.1 lakh crore. In equity, such contributions has grown to Rs.58,000 crore in November 2016 from Rs.35,600 crore in March 2011. This growth is partly due to market-to-market gain and mobilization of assets.
Talking about the jump in direct investment, a senior official from an online distribution platform feels that the increase in awareness of people towards mutual funds is one of the primary reasons for direct investment. “People have been getting a lot of exposure to mutual funds thanks to ads on TV or through investor awareness programs,” he says.
Another reason for the increase in direct investments according to him is the gaining popularity of online investment vehicles. “Investing in mutual funds online is very eas; this allows seasoned players to tap into this option,” he says. Many online platforms have sprouted, helping investors tap into direct funds as an investment channel.
Another reason for increase in direct investments could be the low expense ratio. According to the data by Value Research, the average expense ratio of direct plans of equity schemes with a corpus size of over Rs.1,000 crore is 1.51% as compared to 2.28% of regular plans. The difference between expense ratios of the two types of plans is as low as 10-50 basis points in some schemes and as high as 100-148 basis points in some others.