Direct plans now constitute 25% of mutual fund AUM: CRISIL

Within the debt category, liquid and ultra short term debt funds were the highest contributors to average AUM of direct plans.

July 29, 2013 2:48 IST | India Infoline News Service
A study by CRISIL Research, India’s largest independent and integrated research house, reveals that direct plans, launched since January 1, 2013, are increasingly attracting large investors. Average assets under management (AUM) of direct plans offered by mutual funds rose by almost 70% to Rs 2.14 trillion during the June quarter from Rs 1.27 trillion in the March quarter. Direct plans now constitute 25% of the total industry AUM against 15% in the previous quarter. Debt-oriented mutual funds constitute 98% of the total AUM under direct plans.

Within the debt category, liquid and ultra short term debt funds were the highest contributors to average AUM of direct plans. AUM of direct plans of liquid funds rose by Rs 244 bn to cross the Rs 1 trillion mark as of June and constituted over 50% of the category’s AUM. For ultra short term debt funds, the AUM under direct plans rose by Rs 162 bn to Rs 359 bn as of the latest quarter. Rise in AUM of direct plans in these categories is the outcome of more institutional investors (who dominate the category) shifting to less expensive plans. As per data released by the Association of Mutual Funds in India (AMFI) in March 2013, corporates contributed 80% of the Liquid/Money Market category AUM.

Direct plans came into existence after the Securities and Exchange Board of India asked fund houses to provide investors with direct access to mutual fund schemes sans any distributor costs. Direct plans enable investors to invest directly through the fund house instead of distributors. The total expense ratio of direct plans is lower than that of regular plans to the extent of distribution costs. Returns from these plans are thus higher than returns from regular plans.

A comparison of returns between direct and regular plans for the quarter ended June 2013 reveals that the Long Term Income Funds category outperformed by 0.76% on an annualised basis followed by Equity Linked Savings Scheme (ELSS) which outperformed by 0.65%. Monthly Income Plan – Conservative category with a performance margin of 0.64% was a close third. According to Sandeep Sabharwal, Senior Director-Capital Markets, “Higher returns from direct plans are an outcome of lower expense ratio for these plans as distribution costs are excluded. In future, more institutional investors and high networth 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. Retail investors can use mutual fund rankings in the public domain and invest directly in top ranked funds.”

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