Sebi bats for lower-cost direct mutual fund plans

Sectoral estimates suggest that more than 60% of institutional investors now invest in direct ones

The Securities and Exchange Board of India (Sebi) has asked the Association of Mutual Funds in India (Amfi) to promote direct plans as part of its investor awareness programmes.

Direct plans allow investors to bypass distributors and save on commission. These have a higher net asset value than regular plans; the expense ratio is also less. 

Investors can save 80-100 basis points (bps) in direct equity plans vis-a-vis the regular equity ones.

As of April, 40.5 per cent of the mutual fund sector's assets came directly. A large proportion of direct investments were in non-equity schemes, where institutional investors dominate.

Sources say the market regulator feels the direct-to-regular asset mix should improve in favour of the former.

The ‘mutual fund sahi hai’ campaign has helped bring in a lot of new investors from under-penetrated regions. 

The first phase of the campaign started last year, with the idea of addressing worries regarding MFs.

Thus far, the overall push toward direct plans has been led by institutional investors, especially in debt products.

Sectoral estimates suggest that more than 60 per cent of institutional investors now invest in direct ones. 

About 10 per cent of individual investors chose to invest directly, and 18.5 per cent of the assets of wealthy individuals were invested directly. 

The latter figure is likely to go up, though, with the wealthy routing their money through registered investment advisers.

“Wealth management platforms are advising clients to go direct. These firms typically charge flat fees for advisory services and handhold investors during the investment, in exchange for a fixed fee,” said an expert.

Sebi has also asked fund houses to follow the best practices guidelines put out by Amfi. 

Among other things, the regulator has reiterated the need for fund houses to stick to the  guidelines that stipulate a cap on payment of upfront commission to distributors. 

The best practices guidelines limited the upfront commission at 100 basis points from April 1, 2015.

To buttress assets in a rising market, MFs had paid high upfront commissions to distributors in the past financial year. Those for selling open-end equity schemes went as high as 200 bps; those for closed-end ones were five to six per cent, said experts.

Assets managed by MFs grew from Rs 19.11 trillion in April 2017 to Rs 23.21 trillion (equity assets were a little over Rs 7 trillion) in April 2018, close to 21.4 per cent higher. 

They garnered this record number on the back of monthly Systematic Investment Plans to the tune of Rs 50-60 billion. 

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