 "Rise in DIY investing: Direct plans now make up around 40% of SIPs")
Online investment platforms are rapidly reshaping the mutual fund (MF) distribution landscape. The share of direct plans in SIP (systematic investment plan) accounts has climbed to nearly 40 per cent from around 21 per cent four years ago, indicating that the majority of the newer investors are coming in through the direct investment channels.
Mutual fund investors can choose between direct and regular plans. Regular plans, distributed by intermediaries like banks and agents, include commissions for their services.
Direct plans, by contrast, are commission-free and cater to investors comfortable navigating the process without assistance.
These plans are available through mutual fund company websites and online platforms, such as Groww and Zerodha, which have been pivotal in their expansion.
At the end of October 2024, direct plans accounted for 39 per cent of the 101 million SIP accounts; their share in total SIP accounts stood at 21.5 per cent in October 2020 and 17 per cent in March 2020.
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However, their representation in total SIP assets under management (AUM) remains modest. Industry data shows that while the AUM linked to direct plan SIPs grew from Rs 29,340 crore in March 2020 to Rs 2.7 trillion in October 2024, its share in total SIP AUM rose only from 12.2 per cent to 20.3 per cent.
This disparity, according to experts, can be attributed to two key factors: Larger average ticket sizes and longer durations for regular plan SIPs. These differences are stark among SIPs older than five years -- there are 1.1 million direct plan SIP accounts managing Rs 49,700 crore in AUM, compared to 9.4 million regular plan SIP accounts with Rs 3.4 trillion in AUM.
According to experts, the smaller share of older SIPs in direct plans reflects both the relatively recent emergence of direct investing and the tendency of do-it-yourself (DIY) investors to churn portfolios more frequently.
“The investment in direct plans largely comes from fintechs. These platforms bring a large chunk of the business, with the largest distributor accounting for nearly 10 per cent of total SIPs. However, the ticket size is much lower. The fact that the direct plan was introduced much later than the regular plan also tips the AUM scales towards the regular plan,” said D P Singh, deputy MD & joint CEO, SBI Funds Management. Direct plans were introduced by the Securities and Exchange Board of India (Sebi) in 2013.
Farhad Gadiwalla, executive vice-president & head-products at UTI AMC, highlighted the role of financial advisors in fostering longevity in regular plans. “Investors in regular plans typically have the support and guidance of financial advisors. This encourages investors to stay on course and adopt a more disciplined investment approach and longer SIP durations,” he said.