Mutual fund investors give middlemen the slip

ET Intelligence Group: The average Indian saver is no longer a stranger to D-Street. Why so? Well, for a start, the role of intermediaries in channelling household savings to the financial markets through mutual funds appears to be less dominant than it earlier was.

The share of national and regional distributors as a distribution channel to open mutual fund investment accounts has more than halved to 17 per cent in FY20, from 38 per cent in FY13. In the same period, the share of mutual fund investments through the direct-scheme mode has nearly doubled to 45 per cent in FY20 from 23 per cent, showed the data from the Association of Mutual Funds of India, collated by Reliance Securities research.

The reasons aren’t hard to find. For starters, it is not just about the awareness of mutual funds as an investment product that has increased its attractiveness among investors. Savers, especially those in tier-II and tier-III cities, have realised that direct schemes fetch higher returns than regular schemes. That’s because direct schemes do not entail distributor’s fee, which crimps the Net Asset Value (NAV) of a unit.

Furthermore, opening of new mutual fund offices or new branches of banks in tier-II and tier-III cities has increased investor access. Additionally, the increasing use of digital applications has boosted the prospects of the direct investment schemes at the expense of those offered by intermediaries.

To be sure, the decision to do away with upfront commissions on selling mutual funds schemes has resulted in the decline in the share of national and regional distributors in the resource mobilisation business. Analysts point out that these distributors are not selling mutual fund products as aggressively as they earlier were because of the disincentives linked to commissions.