Outlook Money OLM - FEBRUARY 2018 | Page 51

distributors .” Paying a commission of 2 per cent may not be much for a retail investor investing `1,50,000 a year , but the commission adds up to a substantial sum if the investor is putting in `1 crore a month , as many HNIs do . Explaining the rationale behind direct plans , Kunal Bajaj , CEO and co-founder of Clearfunds , says : “ Direct plans are for high networth individuals who have the ability to pay their advisors or wealth managers a flat fee for this service .” However , they might still need human intervention for procedural matters . For example , completing know-your-customer ( KYC ) processes or resolving procedural and technical glitches .

Even though distributors and asset management companies would like investors to believe that commissions don ’ t impact returns for small ticket investments , over the long term , commissions also compound and dent the final corpus . Explains certified financial planner , Shweta Jain , “ Direct plans are not only for HNIs or those who do not need hand-holding . The difference in expense ratios of direct and regular plans may seem small ,

AMC Name

Industry

Month

Through Direct Plan but over a period of say 10 years , the effect of compounding will make a huge difference to the corpus .” ( See : Direct Vs Regular )

She always recommends direct plans to prevent corrupt manufacturers from influencing her recommendations . Since there is no commission element involved , investors are unlikely to face misselling for such plans .

While the reluctance to pay higher commissions through regular plans is pushing investors towards direct plans , the ease of doing business online is what is driving the insurance customer to go direct . The shift to direct channels has been far more pronounced in insurance because it is a transactional product . According to a report by PwC

Winds of Change : Monthly Flows into MFs Through Direct & Distributor Channels

Through Associate Distributors

Through Non- Associate Distributors

Source : AMFI ; ( Data as of Nov ’ 17 ) Amount in ` Crore

Direct vs Regular

If `10 lakh is Invested in a Mutual Fund for 15 years

Returns Corpus ( In ` Lakh ) Direct Plans 12.90 % 78.66 Regular Plans 12 %* 68.66 * Post Charges . Source : Certified Financial Planner Shweta Jain

on the insurance industry , 20-25 per cent Indians are now using digital channels to understand and compare insurance products . Another research shows that 90 per cent customers research term insurance plans online . Explains Yashish Dahiya , co-founder and CEO , Policybazaar : “ The digital customer wants convenience and doesn ’ t like the delay in either policy processing or issuance . Through our digital solutions , we have been able to cut down the delay from two days to two hours .” On the policy document front , the customer gets it instantly in the digital space compared to the physical space where he / she gets a cover note at the time of purchase followed by policy copy over next few days .”

Even though experience in some developed countries suggests that moving investments online is not easy , the mutual fund industry here is seeing a rapid rise in direct investments . Direct investments ( direct plans , which come with lower expense charges and where the investor invests directly through the AMC ), amount to 14 per cent of individual assets today , Association of Mutual Funds in India ’ s ( AMFI ) data shows . Nearly `600 crore , which is close to 10 per cent of monthly flows through the systematic investment plans ( SIP ) are going into direct plans . No wonder , the vast army of mutual fund distributors and insurance agents is a worried lot today . Intermediaries are staring at a reality where their customers may

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