Industry observers said that direct investment has increased from 2 per cent to 6-7 per cent, which is a marginal rise of 5 percentage points. Many investors still prefer to invest through distributors in spite of a 2.25 per cent entry load. Inconveniences in the online process and asset management companies' (AMC) offices have kept investors from taking the direct option.
The online option is not very easy, even for tech-savvy investors. Only 16 fund houses offer this service. With the fund houses entering into tie-ups with private and foreign banks, customers intending to apply online need to have accounts with these banks. Direct applications are mainly coming from institutional clients (Rs 10 lakh and above) as they have the manpower to do the legwork.
Online systems are not completely error-free, either. "We often get investors who made payments through the payment gateway, but funds were not transferred", said a fund executive who did not wish to be named.
Even applying directly through the AMC's office is not a great experience. One normally loses at least half-a-day in this process. There are travel expenses, waiting time to meet the officer and the actual form filling exercise, which is a rather cumbersome process for a novice. Moreover, investors putting in more than Rs 50,000 need to comply with KYC norms.
Even AMCs are not geared up to handle the pressure of direct customers. Their penetration, especially in the Tier-ii and Tier-iii cities, is still a matter of concern. Funds such as JM Financial Mutual Fund plans to increase its branches to 300 by the end of this year, but markets experts say that it is mainly to increase distributors' footfalls. Typically, in a branch, 85-90 per cent visitors are distributors and direct clients' are 10-15 per cent.
Investors find the distributors useful because they offer advisory services, besides reducing paperwork. Since distributors sell multiple funds at the same time, customers can choose funds based on their risk-profile.
Bhanu Katoch, marketing head, JM Financial Mutual Fund, said, "The right kind of advisory is far more valuable than the entry load. " Though a fund provides multiple options, investors have to take a call. Investors also prefer the distributor route because it is easier to book profits and redeem the units without going through much paper work.
Financial planners say that Sebi's move is good for investors who have the necessary skills to choose the right fund and the time to manage their investments. But, fund houses still need to create a more conducive environment to attract direct investors.
