Direct vs. Regular Mutual Funds: Key Investment Trends from AMFI-Crisil Factbook 2024
The Securities and Exchange Board of India (SEBI) directed mutual fund houses to sell products through the direct route in addition to distributors in September 2012, and as a result, many direct plans were launched in January 2013.
Direct plans are less expensive than regular plans and thus have found considerable appeal with investors, particularly the young generation. However, regular plans continue to lead the total assets under management (AUM) in the mutual fund sector, as per the just-released AMFI Crisil Factbook 2024.
The report finds that the proportion of direct plans to total mutual fund AUM has increased significantly over the years. Direct plans represented 27.4 percent of the industry’s total AUM in March 2019, which increased to 41.2 percent in March 2024. During the same period, the proportion of regular plans fell from 62.6 percent in March 2019 to 58.8 percent in March 2024.
Five Important Trends in Direct vs Regular Mutual Funds
1. Regular Investors keep their Investments for longer
Statistics show that investments done via regular plans have a longer holding time compared to investments done via direct plans. As of March 2024, 21.2 percent of regular plan investments had a holding period of over five years, while just 7.7 percent of direct plan investments had a holding period of over five years. This pattern indicates that advice from intermediaries has traditionally served to assist investors in being disciplined long-term investors. Yet, as direct plans came into being only in 2013, their holding periods continue to evolve.
2. Most Investors still prefer Regular Plans
The AMFI-Crisil data indicates that corporate investors had a superior share of 60.4% in the total direct plan AUM, followed by retail investors and HNIs.
Among the normal AUM segment, HNIs had the largest portion (41.6%), followed by retail investors (36.8%) and corporate investors (18.1%).
3. HNIs have a greater preference for Direct Plans
The information reveals that HNIs exhibit a significant preference for direct plans, using their investment insight to take charge of investments on their own. Also, the majority of their investments continue to be in regular plans, showing an ongoing dependence on professional investment advisors.
4. Retail Investors prefer Regular Plans
Individual investors have a modestly higher percentage in normal plans, reflecting their dependence on financial advisors and distributors. This pattern shows that even though cost-saving investment opportunities are gaining favor, most individual investors still like the convenience and guidance offered by middlemen.
5. Younger Investors prefer Direct Plans
More young investors are opting for direct plans. The SIP AUM for the age group 18 to 34 increased more than 2.6 times, from Rs.41,209 crore in March 2019 to Rs.1.51 lakh crore in March 2024.
The proportion of direct SIP AUM for the age group improved from 20.1 percent in March 2019 to 23.6 percent in March 2024. In contrast, the proportion of systematic SIP AUM fell from 14.9 percent to 12.0 percent.
The reason for the move towards direct plans is that more youngsters are becoming aware of digital and finance related issues. Furthermore, fintech platforms today provide low-cost and easy to handle investment strategies.
