The mutual fund industry body AMFI (Association of Mutual Funds in India) in its recently held annual general meeting (AGM) decided that a sub-committee will be set up to study the implementation of the SEBI (Securities and Exchange Board of India) directive to launch direct plans, according to media reports.
This direct plan is intended for investors who deal with a mutual fund directly, without going through an intermediary distributor. The capital market regulator in its directive last month had directed to launch direct plans.
Many independent financial advisors (IFAs) had express concern about the possible impact of the introduction of direct plans. Mumbai-based Foundation of Independent Financial Advisors (FIFA) had represented to SEBI on 10th August, when it first heard of the regulator’s intention to consider a direct share class.
According to FIFA, “Direct will be detrimental to the business of the IFA, especially the business he has brought into the industry and nurtured for several years. Distributor based differential pricing would, similarly, impede the growth of the mutual fund industry.” Direct plans would also induce unhealthy investor behavior wherein distributors are used for advise but circumvented when investments are actually done, FIFA had added.
According to AMFI, if necessary the proposed sub-committee will approach SEBI with its suggestion on implementation of direct investment. The SEBI new guidelines have said that AMCs (asset management companies) will offer a direct plan in their schemes from January 1, 2013. In equity funds, such direct plans could be cheaper than regular funds by 50-75 basis points. This has left many distributors worried.