Direct MF plans made convenient

If you have not been investing in direct plans of mutual funds (MF) because of the cumbersome procedure, you can consider doing so now. From January, you can transact in direct plans of MFs online through the MF Utility platform. You can transact in direct plans of up to 25 fund houses, which are linked to MF Utility.

Till now, it was possible to invest in direct plans physically. If you wanted to do it online, you had to do it through websites of individual fund houses, which means keeping track of multiple user IDs and passwords. Also, you had to get used to multiple web implementations/procedures of various fund houses. Or you could do it through platforms such as myCAMS. The MF Utility platform is one more option to transact in direct plans online.

“Only investors who are educated, understand investment and don't require advisors' advice choose direct plans,” says an industry official.

Direct plans have not picked up even two years after they were introduced. Industry players say eight-10 per cent investors put money through this route. One reason is that most retail investors prefer to invest through financial advisors, who often offer them regular plans. Retail investors need advice with choosing the plan, monitoring the portfolio, deciding how much to invest, and when to redeem, etc. Until now, feeds of direct plans were not available to advisors. Hence, advisors could not track their clients’ investments and usually advised them to go for regular plans, whose feeds were available to them.

With the Securities and Exchange Board of India (Sebi) recently asking fund houses to share feeds of direct plans with Sebi-registered independent advisors (RIAs), now they can advise their clients to invest in direct plans and also monitor the clients' portfolios. However, it is not currently available to distributors.

“Until now, it was not possible to provide reports or advice on direct plans to clients. Now we would be in a position to do so, with the feeds/data being made available to RIAs,” says Suresh Sadagopan, an RIA and founder, Ladder7 Financial Advisories.

The biggest advantage of direct plans is the cost advantage. The expense ratio for regular plans are 2-2.5 per cent, because the fund house pays commissions to distributors. While it might not matter much in case of investments of Rs 5,000-10,000, for a large amount and over a long period, the difference can be significant.

“Going ahead, it could happen that RIAs may advise their clients to switch entirely to direct plans. But it will be gradual, once platforms like MF Utility evolve and advisors get more used to such platforms,” says Sadagopan.

The increasing popularity of robo advisories, too, might encourage more investors to switch over to direct plans. Robo advisories do the risk-tolerance analysis based on fixed parameters and give advice on where to invest. If these robo advisories enable direct plans, investors with basic needs will find it easier to invest in direct plans through them. Others who have more sophisticated requirements would pay for the advice and invest in direct plans through the available platforms such as MF Utility or myCams, says Sadagopan.

According to Srikanth Meenakshi, co-founder and chief operating officer, FundsIndia.com, now even platforms like FundsIndia can technically offer direct plans, if they wish to. These platforms only offer regular plans and get commission from fund houses. But, they offer advisory services free to investors.

“The intermediary has to be paid in some form - either by way of commission or fee. So, for investors, the difference between direct and regular plans is a very thin margin, unless an investor does it completely on his own,” he points out.