MF distributors sweat as direct plan deadline nears

Investors, especially retail and high net worth individuals (HNIs), who invest in equity funds stand to benefit hugely from the difference in expense ratio if they go direct. According to market participants, the impact of this lower expense ratio on the NAV will be minuscule in the initial stages, but will become significant after a year or two. According to estimates, the gap in expense ratio for debt schemes might be 10-15 bps while that for equity schemes might be 75-100 bps, a significant difference for long-term investors.

Industry observers say the number of HNIs migrating to direct plans will depend on the difference in the NAV between direct and normal plans. “If the difference is less than 30 bps, the impact will be minimal. But if the difference is more than 50 bps, a lot of HNIs will migrate to the direct plans,” said K Ramesh Bhat, president, IFA Galaxy, an independent body of financial advisors. “We have been talking to a lot of fund houses and they say the difference would be somewhere between 30 bps and 50 bps.”

AMCs have been asked to provide a separate plan for direct investments in existing as well as new schemes by January 1, 2013, as per the Sebi circular.

It further states that such a separate plan shall have a lower expense ratio, excluding distribution expenses and commission, and no commission shall be paid from

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