SEBI Chief Ajay Tyagi has expressed his concern over the muted response to direct plans. He said this while addressing fund official at the AMFI AGM 2019 held yesterday in Mumbai.
Tyagi said, “Despite all the measures taken till date by both SEBI and the industry, the numbers I am seeing with respect to direct plans are not very encouraging.”
The SEBI Chairman further said that the market regulator has found instances where fund houses have not maintained difference in the TER between direct plans and regular plans to the extent of distribution commission. He said that such practices defeat the very purpose of direct plans.
Tyagi said that SEBI has also specified fund houses that all fees and expenses charged in a direct plan in percentage terms under various heads including fund management fee should not exceed the fees and expenses charged under such heads in regular plan. Citing the rationale for this, he said, “This is expected to ensure that the difference in expense ratios between the two plans is not misused for charging additional expenses under other heads.”
Another point that Tyagi highlighted is the growth of low cost ETFs in India. He said, “ETFs are another set of products that are yet to catch the fancy of Indian investors. They account for only around 6% of the total MF AUM in India as compared to their massive take-off globally. ETFs, as a category, offers the advantage of having a lower TER than other fund offerings. Not much progress has been made in encouraging investments in ETFs.”
Tyagi has advised the MF industry to combine investor awareness programmes and technology to promote direct plans and ETFs among investors.
