One-fourth of MF assets now via direct plans

Assets under management under direct plans rose 70% to Rs 2.14 lakh crore during the June quarter

Investors are increasingly opting to put money in debt mutual fund schemes through direct plans, rather than tapping the services of distributors. A study by CRISIL Research shows direct plans, introduced on January 1, constitute 25 per cent of the mutual fund sector’s total average assets under management (AUM) for the quarter ended June 30, against 15 per cent in the previous quarter.

AUMs under direct plans rose almost 70 per cent to Rs 2.14 lakh crore during the June quarter, compared with the March quarter-end, according to CRISIL. Debt schemes constituted 98 per cent of the total AUM under direct plans, it said.

Through direct plans, investors can put money in schemes at a lower cost because there are no distributor charges. This boosts the returns of the schemes over the long run because of cost savings.
 

“Higher returns from direct plans are an outcome of lower expense ratio for these plans as distribution costs are excluded,” said Sandeep Sabharwal, senior director, capital markets, CRISIL.

A comparison of returns between direct and regular plans for the quarter ended June shows long-term income funds category outperformed by 0.76 per cent on an annualised basis. Investment through direct plans of tax-saver equity linked savings scheme (ELSS) and monthly income plans (MIPs) helped investors clock better returns of roughly 0.65 percent.

Mutual fund officials said so far, institutional investors and high net worth individuals were shifting to direct plans mainly for liquid scheme investments. Though the cost under direct plans of liquid schemes is just about 0.05 percent cheaper, the savings are sizable for corporate investors because they invest thousands of crores.

“In future, more institutional investors and high net worth individuals are likely to shift to direct plans as these investors are far more capable at taking informed investment decisions. Retail investors, too, could start shifting to these plans as awareness about the benefits of these plans increases,” said Sabharwal.

The AUM of debt funds under the direct plans nearly tripled to Rs 69,500 crore as of June 30 from Rs 24,700 crore in the previous quarter.  Within the debt fund fold, money market funds were the highest contributors to the direct plan AUM in absolute terms. Liquid funds’ AUM rose by Rs 24,400 crore to touch the Rs 1 lakh crore at the end of the June quarter. AUM under ultra short-term funds rose by Rs 16,200 crore to Rs 35,900 crore.