NEW DELHI: Within six months of their launch, direct plans of mutual funds have cornered 25% of the total AUM of the industry. According to Crisil, the average AUM of direct plans crossed Rs 2,14,000 crore in the April-June 2013 quarter. This was a 70% rise over the previous quarter when the direct average AUM was Rs 1,26,700 crore.
Reliance Mutual Fund had the largest AUM under direct plans in the June quarter, with almost Rs 22,400 crore invested in these schemes. UTI Mutual Fund is at second place with direct AUM of Rs 21,800 crore followed by ICICI Prudential Mutual Fund at Rs 21,300 crore.
Crisil’s research shows that direct plans are increasingly attracting large investors, such as corporates and institutional investors. While direct plans now constitute 25% of the total industry AUM, 98% of this is accounted for by debt-oriented mutual funds. Equity funds account for just 2% of direct AUM.
Liquid funds, fixed maturity plans (FMPs) and ultra short-term debt funds were the biggest contributors to the average AUM of direct plans during the June quarter. The direct AUM of liquid funds rose by Rs 24,400 crore. Liquid funds account for nearly 49% of the total direct AUM. FMPs saw inflows of Rs 21,700 crore while ultra short-term debt funds AUM rose by Rs 16,200 crore.
According to Crisil, the rise in the AUM in these categories is mainly due to institutional investors (who dominate the category) shifting to less expensive plans. 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.
Crisil compared the returns of direct and regular plans and found that the direct plans of long-term income funds category were the biggest outperformers. They gave 0.19% higher returns during the June quarter. MIPs and ELSS schemes came second with 0.16% higher returns than their regular counterparts.
Sandeep Sabharwal, Senior Director-Capital Markets at Crisil, says, “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.”