Share of direct plans in SIPs rises to 31% in three years, shows data

But their share in SIP AUM hasn't grown proportionately; 'regular' plans still dominate despite higher expense ratio

The ‘direct’ option for investing in mutual fund (MF) schemes lag behind ‘regular’ plans, notwithstanding the cost benefit of the former. But they are fast catching up. Data released by the Association of Mutual Funds in India shows that the share of direct plans in the total active systematic investment plan (SIP) accounts has risen to 31 per cent in three years, from 20 per cent.

Every MF scheme has two options: regular and direct. Regular plans are sold by MF distributors who get commissions in exchange. Direct do-it-yourself plans require no commission to be paid to the distributor, who typically helps investors with the paperwork.

While the number of accounts through the ‘direct’ route has increased, the share of direct plans in the total SIP assets under management (AUM) hasn’t grown proportionately. As of August 2020, direct plans accounted for 13 per cent of the total SIP AUM and have only risen to 16 per cent since then.

This is a result of two factors. Most direct SIP accounts are newer, as opposed to regular plan SIPs. Also, the average SIP ticket size made through direct channels is lower.

Nearly 91 per cent of investor accounts older than five years are ‘regular’ SIPs, underscoring how direct SIPs are a relatively new development. The share of direct plans improves if SIPs are older than three years. Yet, they are only a third of total accounts.

Direct plans offered by financial technology (fintech) players like Groww, Zerodha, and Paytm Money are popular among young investors. Also, one can invest in direct plans with a fund house — via its website or branch.

According to the CAMS MFDEx data for April, the average SIP ticket size for online investment platforms was lower, in contrast to regular plan distributors. For instance, investors on PhonePe’s platform invested an average Rs 816 per month, while Groww’s average SIP size was Rs 1,559. By comparison, premium regular plan distributors like NJ India Invest and State Bank of India had an average SIP size of Rs 2,779 and Rs 2,047, respectively. As a result, the average AUM of direct SIP accounts was much lower, compared to direct plans.

As of August, the average AUM of SIP accounts in direct plans was Rs 57,000, against Rs 1.37 lakh in the case of regular plans.

Can direct platforms sustain growth?

The biggest lure for ‘direct’ investors is the savings on commission. However, this scenario may change with the Securities and Exchange Board of India’s proposal to allow fintech players to charge a transaction fee - either from asset management companies or investors. If this proposal comes to fruition, the savings in investments through these direct investment platforms are likely to shrink. Also, the preference could once again shift towards regular plans, where investors get investment guidance gratis from MF distributors.