MF distributors sweat as direct plan deadline nears

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SummaryWith the deadline drawing near for implementing direct plans, mutual fund distributors are a worried lot as they believe that a host of institutional clients might switch over to these plans.

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 such plans. The plan shall also have a separate NAV.

Winds of change

* Institutional investors can save about 40-50 basis points on commission if they choose to go direct

* Institutional investors invest more than 90% of money in liquid funds and ultra short-term debt funds

* HNIs will migrate to direct plans if difference in NAV between direct and normal plans more than 50 bps

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