Direct plans now constitute 33 percent of total industry AUM: CRISIL

The assets under management of direct plans in equity funds too has grown from Rs. 2,700 crore in March 2013 to Rs. 7,818 crore in March 2014.

Direct plans are increasingly becoming popular among investors.

The assets under management in direct plans of equity funds have nearly trebled from Rs. 2,700 crore in March 2013 to Rs. 7,818 crore in March 2014, shows CRISIL data.

However, the AUM of direct plans in equity funds still constitutes a fairly small percentage of the overall equity assets. Out of the Rs. 2 lakh crore equity assets as on March 2014, 96% assets were managed by distributors while 4% or Rs. 7,818 crore was in direct plans.   

In equity funds, distributors said that it is largely HNIs who have moved to direct plans and not retail investors. A recent data released by AMFI showed that HNI folios in equity funds have increased. “There is some migration of HNIs in direct plans in equity funds. Institutions were investing directly when there were entry loads,” said Vinod Jain of Jain Investments.

Vinod believes that distribution led business will grow as equity markets revive. “You need distributors to bring new investors in equity funds. Institutions will continue to invest in direct plans as long as the option of direct plans is open,” he added.

The assets in direct plans have increased in all categories of schemes. Short term and long term debt funds also saw threefold growth in direct assets.

FMPs and liquid funds had the largest share of direct assets. From Rs. 8,700 crore in March 2013, the assets in direct plans of FMPs increased nine times to Rs. 79,914 crore in March 2014. Out of the total 1.55 lakh crore assets under FMPs, 52% is invested through direct channel while the remaining was routed through distributors.

Suresh Soni, Managing Director & CEO, Deutsche Mutual Fund said that corporate investors have shifted to direct plans in liquid funds and FMPs. “There has not been any remarkable change in investors behavior as far as equity funds are concerned. A large portion of assets is still channelized through distributors. FMPs and liquid funds have seen highest increase in direct assets.”

Direct plan assets under management

“Those who had to move have already moved to direct plans. A majority of these were corporate investors. Large corporates are investing in direct plans. However, the smaller and mid-sized companies are still investing through distributors. The assets under management in direct plans have grown because both debt and equity have done well. People are attracted to direct plans because there’s a clear return differential. However, they may miss out on opportunities if they don’t have access to distributors advice. It is not possible for treasury team to talk to 44 fund houses. However, distributors are capable of providing timely advice which would greatly benefit corporate as opposed to the small difference in returns they get from direct plans. The AUM in direct plans may grow further but if the funds don’t perform well they may return to distributors,” said Hemant Rustagi of Wiseinvest Advisors.

Experts feel that as markets become complex and opportunities grow corporate investors will turn to distributors for advice. “I feel investors will be ready to bear a small cost for the advice they’ll get from investors. A large portion of assets will continue to be routed through distributors as investors need handholding and advice,” said Hrishikesh Parandekar, CEO & Group Head, Broking, Wealth Management, & Asset Management, Karvy.

However, some feel that savvy investors who are aware of the benefits of direct plans will continue to invest in direct plans. “I think the assets will grow further as the market expands. Companies which have a treasury team will continue investing in direct plans,” said D P Singh, Executive Director, Chief Marketing Officer (Domestic Markets), SBI Mutual Fund.

Direct plans were mandated by SEBI in January 2013. Overall, the direct plans now constitute 33% of the total industry AUM. The AUM of direct plans has increased 133% from Rs. 1.26 lakh crore in March 2013 to Rs. 2.94 lakh crore in March 2014.