Amfi has allowed distributors and financial advisers to get access to their client’s investment details made through the direct plan
Until now, an adviser can only access her client’s portfolio if the money has been invested in mutual funds through a distributor plan.
Mumbai: Direct plans are set to take off in a big way. The Association of Mutual Funds of India (Amfi) has allowed distributors and financial advisers to get access to their client’s investment details made through the direct plan.
Until now, an adviser can only access her client’s portfolio if the money has been invested in mutual funds (MFs) through a distributor plan. The rules so far did not permit an adviser’s code to be attached to a direct plan application form.
If a customer wishes to invest her money in direct plans and then allow her financial adviser to continue to monitor them on a regular basis, she will need to give a letter of consent to her planner.
In January 2013, capital market regulator Securities and Exchange Board of India (Sebi) had asked fund houses to offer direct plans to investors. Typically, a direct plan appeals to those who have knowledge about MFs, knows where to invest, can decipher funds and would, therefore, wish to avoid paying distributor commission. It does not have distributor’s cost embedded in it, unlike a normal plan, and is, therefore, cheaper.
Financial planners, those who charge clients a fee, found direct plans attractive. Since they charge clients a fee, many of them prefer to invest their clients’ corpuses in direct plans to help them reduce costs.
But a direct plan application does not carry a distributor code. In other words, it is not tagged to a distributor, or an adviser, and for an adviser to monitor such investments became a problem. Amfi’s move solves this problem.
“This, definitely, is a very good step in the right direction. We have been asking this for a long time. By putting in direct plans, investors stand to save a lot,” said Suresh Sadagopan, founder, Ladder7 Financial Advisors.
If advisers shift their client’s money to direct plans, they will stop earning fees that they would be earning from regular plans where the money has been parked so far.
Not all financial planners are enthused.
“Unlike the Institute of Chartered Accountants of India that has prescribed minimum fees that chartered accounts must charge to their clients, we don’t have a similar rule from Sebi. Sometimes, clients don’t pay us for a year or two. In such cases, we can fall back on trail fees. If we shift all our clients to direct mode, then our income might get hit,” said KartikJhaveri, founder and director, Transcend Consulting (India) Pvt Ltd.
Sadagopan doesn’t see this as a big challenge. He says advisers and planners will need to demonstrate to their clients how much money they’ll save if they invest through a direct plan and pay fees to advisers instead.
Direct plans have grown steadily in cases of equity and fixed income funds where a majority of investors are retail. Around 9.5% of the overall equity corpus lies in direct plans in September, up from 5.1% a year ago, according to industry estimates.
Around 24% of overall fixed income funds’ corpus (minus liquid funds) lie in direct plans.
Source of News :LiveMint – Dated : 28th November, 2015
Author :Kayezad E. Adajania