The introduction of direct plans this year has significantly impacted debt mutual fund institutional distributors, both on the transactional and advisory sides. Many debt institutional distributors have restructured their operations, while a few such as Mata Securities have reduced their manpower, according to sources.
Some players have now turned their attention to areas such as debt syndication and insurance distribution to shore up their revenues. Distributors are also trying hard to convince their clients to route at least a part of their assets through them or switch to a fee-based model.
?The industry is set to lose out on the cream of advisors as investors move direct. This will leave the industry with distributors who will simply peddle products offered to them by the AMCs,? said Sunil Jhaveri, chairman of MSJ Capital & Corporate Services, a debt distributor. Major MF debt institutional distributors include the likes of JM Financial, Axis Capital, Kotak Mahindra Bank, Aditya Birla Money, SPA Securities, Mata Securities, Prebon Yamane and Darashaw.
?Institutional distributors that followed a pure transaction-led model are doomed. However, there are still opportunities to advise on duration products within the mid-market segment of R10-100 crore,? said the distribution head of large AMC on condition of anonymity. Duration products such as dynamic bond funds require a fair bit of research, which is why institutional investors may still need some advice before investing, said experts.
Transaction-led distributors, on the other hand, are soon becoming redundant as they do not provide value addition to clients.
Direct plans, which became operational this year and allow investors to bypass distributors and save on commission, contributed about 15% of the industry AUM for the three months ended March 2013, according to data from industry body Amfi.
However, industry observers believe the proportion of direct plans as a percentage of debt AUM is much higher. ?On an average, I believe about 30-40% of debt money has gone direct, which has had a major impact on the business model of debt distributors,? said a senior debt distributor.
A lot of institutional money from banks, insurance firms and even corporates, has gone direct, said market watchers.So far, the shift has mostly been restricted to liquid and liquid-plus funds.
Institutions are hoping to save anywhere between 5 bps and 10 bps on investments into liquid funds and anywhere between 25 bps and 50 bps on investments into duration funds such as income funds and dynamic bond funds, said experts. About 80% of the debt institutional investment is in liquid and liquid-plus funds, they said.