The 35-trillion Mutual Fund (MF) industry is witnessing a shift to direct plans in the top-30 (T-30) cities of the country. The assets under management (AUM) of direct plans for T-30 cities stands at Rs 14.43 trillion slightly lower compared to regular plans which have assets of Rs 14.82 trillion as on July end.
Market participants say that this is probably the first time AUMs of both direct plans and regular plans for T-30 cities and beyond-30 (B-30 cities) are so close to each other. In March 2021 total AUM of direct plans for T-30 cities was Rs 12.78 trillion, while for regular plans it was 13.28 trillion.
Interestingly, according to the monthly data, for T-30 cities, the gap between the AUM of direct plan and regular plan has shrunk from Rs 0.87 trillion as at the end of March 2020, to Rs 0.39 trillion as at the end of July 2021. The trend for B-30 cities, however, is contrasting. For B-30 cities, the gap has increased from Rs 2.03 trillion to Rs 3.37 trillion during this period.
Lower costs and ease of doing transactions are one of the few reasons investors have been moving towards direct plans. Senior officials in the industry also say that there is a lack of quality services provided by the distributors which has resulted in investors moving towards direct plans of mutual funds.
If the trend continues, AUM of direct plans for T-30 cities could cross that of its regular plans.
D P Singh, chief business officer at SBI MF says that there is disconnect between distributors and investors in T-30 cities. “While retail investors are still preferring regular plans, high networth individuals (HNIs) and ultra HNIs are moving to direct plans. Having said that we see both direct plans as well as regular plans growing as penetration of MFs remains low even now.”
Non-individuals which include corporates, partnership firms, trusts and foreign institutional investors among others have higher assets in direct plans. While individual investors still have larger biases towards regular plans.
The data from Association of Mutual Funds
in India (Amfi) shows that in B-30 cities, investors still favour going through a regular plan as most of the transactions take place through distributors. AUM of Rs 4.72 trillion comes through regular plans in B-30 cities and Rs 1.35 trillion through direct plans.
Arrival of fintech players have played an important role as a large number of young investors invests into mutual funds
through platforms such as Groww, Paytm Money, Zerodha and Kuvera.
Jimmy Patel, MD and CEO at Quantum AMC says that “We have seen improved maturity from investors, and they are getting equipped with knowledge enablers for investments into direct plans. Online platforms have been giving opportunities for seamless investment experience.”
At present, most fintech MF distribution platforms don’t charge commissions and mostly offer direct plans, where the total expense ratios (TERs) are lower compared to regular plans.
Typically, the average ticket size of the retail segment in B-30 towns was about Rs 1.09 lakh, while in T-30 cities, it was about Rs 2.40 lakh. While the combined average ticket size of the retail segment for T30+B30 cities was about Rs 1.84 lakh, the average ticket size of the industry as a whole (retail as well as corporate) is about Rs 3.35 lakh.
Recent success of various new fund offers (NFOs) have also led to investors moving into the direct plans in the past few months. However, market players say that investors will need guidance from distributors on asset allocation and choosing the right funds for long term investing.
“Investors need to be careful in their plan selection and the platform they chose to invest from, since their services requirements going forward should also need to be fulfilled,” added Patel.
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