The D-word haunts MF sellers: will the customer go ‘direct’?4 min read 16 Oct 2012, 07:38 PM IST
Right now there is no clarity as to who will offer the direct plan
The word “direct" is possibly the scariest word in the lexicon today for mutual fund (MF) sellers and advisers. At the receiving end of a series of regulatory changes for the last few years, the unregulated sellers’ community is going through growing pains. The next (and certainly not the last) regulatory directive will kick in on 1 January 2013, when MFs will have to offer two versions of each plan. The regular plan will carry on as before, but now a “direct" option to the existing scheme will be on offer. The only difference between the two plans will be in the cost to the investor. If the current expense ratio for equity funds is between 2.75% and 3% (the expense ratios are yet to settle down post the hike earlier this month), direct plans will be offered at 70-100 basis points less. The Securities and Exchange Board of India (Sebi) has asked fund houses to remove commissions paid to sellers of funds from the expense ratio for investors who come directly to the fund. The regulatory view is that the do-it-yourself (DIY) investor who does not use the services of an adviser or distributor to buy MFs, but selects, buys, sells and maintains her own portfolios, need not pay the distribution cost in the form of commissions that are embedded in the expense ratio. After the exit of loads from funds in 2009, the bulk of the market survives on upfront and trail commissions that the fund house pays out of the expense ratio, few advisers have a fee-only model in India.