Financial Solutions

Direct plan in mutual fund: Time for distributors to adapt by leveraging content sharing and adding new services

Direct plan in mutual fund means investors can directly invest in mutual fund schemes without involving distributors or mutual fund brokers through AMC website. Because of no distribution fees or trail fees paid to mutual fund brokers for such mutual fund schemes, expense ratio would be lower as compared to regular plans (investing through distributors/mutual fund brokers) thereby giving investors higher returns (0.5% to 1.5% p.a. depending upon the AMC expense ratio) compared to regular plans.

The hard truth is that online platform whereby a buyer can come in direct contact with seller has changed the distribution channel across sectors including insurance, mutual fund, real estate decreasing the importance of so-called brokers/middlemen/distributors/intermediaries.

According to Money Control, “Asset management companies (AMC) allowed direct investments in mutual fund schemes much before 2011. However, there were no separate plans for these investments. These investments were made in distributor plan itself and were tracked with single NAV- the one of the distributor plan. Hence an investor was bound to buy mutual funds based on the NAV of the distributor plans. However, things changed with the introduction of direct plans on January1, 2013.”

It is tough for an individual mutual fund intermediary making his/her living from commissions earned through selling mutual funds inform clients about the newly available option of switching to direct plan and forego commission otherwise available with the regular plan. There are mutual fund distributors who are worried if clients come to know of the introduction of the direct plan, they will lose commission money (needless to say, consultancy fee is difficult to realize from clients) and so trying the best to keep the state of ignorance as long possible. This is unfortunate as clients are supposed to be provided with impartial information about all aspects of mutual funds from their mutual fund distributors; it is for information sharing for which mutual fund distributors are supposed to exist in the first place.

For distributors, instead of getting angry/worried, there is a big rural India market where awareness level of mutual fund is lower than insurance. According to a 2014 study by SEBI Penetration of Mutual Funds in India: Opportunities and Challenge, “a low number of agents (per capita) in suburban and rural areas and the slow growth rates in mutual fund sales in the corresponding areas are closely associated with each other.” Instead of generating content yourself, the trick can be using/sharing contents generated by govt. bodies/media houses by bringing it right in front of a prospect in vernacular language. The golden rule in direct selling of keeping informative brochures ready while meeting a prospect one-on-one can work wonder.

Given the fact that more and more transactions are done online, for new-age mutual fund distributors, it is pertinent to start blog/website, leverage social media and find newer ways of generating revenue side-by-side. As always for an individual, it is risky relying only on selling mutual funds and perhaps most distributors are also involved in other verticals (assistance in efiling, insurance, equity to name few). This also gives leverage to forego commission (as in direct plan) or fees (which anyway is difficult to extract) as the same can be compensated from clients with other value added services.

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