While there is no dearth of cricket fans in India who rate Sourav Ganguly as Indian cricket’s best modern day red ball captain and MS Dhoni as the best white ball captain, very few remember the key role played by the team’s Coach in their successes.
In the complex maze that financial markets worldwide, and the Indian markets in particular are, the need for a coach therein too cannot be understated. Add to that, the Indian investor’s preference to have investment options explained along with their tax implications and also be assisted to complete the transaction.
What emerges is a perfect prescription for Independent Financial Advisors (IFAs), now classified as Distributors by the Securities and Exchange Board of India (SEBI).
This is because SEBI has created one more category named Advisors, though the line of distinction still remains somewhat blurred despite scores of iterations. An investment made through a distributor falls under the regular plan category while an investment made through an advisor falls under the direct plan category, as are investments made by an investor herself.
The most recent data put out by the industry body, AMFI indicates that the proportion of direct versus regular in the industry stood at 45:55 viz. 45 per cent of the industry’s assets were routed via direct plans while 55 per cent were through regular plans.
However, as is the case with most data, what you see is not what you get.Further scrutiny reveals that despite aggressive advocacy of direct plans, when it comes to individual investors, 86 per cent of the Assets under Management (AUM) has come through regular plans and more strikingly, 78 per cent of the AUM of High Networth Individuals (HNIs) has come to the mutual fund industry through regular plans.
Direct plans, on the other hand seem the preferred mode of investment for institutional investors with 72 per cent coming via that route and also in case of ETFs and Fund of Fund investments where 80 per cent of the funds were routed via the direct route.The data clearly suggests that notwithstanding all the doomsday predictions, distributors and regular plans still remain the biggest mobilizers of mutual fund investments in India.
A nightmarish month in the markets like March 2020, which witnessed a vertical fall in equities, and compounding of this misery by unpleasant and confidence shaking developments in the debt mutual fund segment, is a good example of where distributors score.
The ability of the distributor (like a coach in an equivalent cricketing scenario) to calm frayed nerves and remind investors of their long term investment objectives in such scenarios is vital. This is one of the primary reasons why I believe that HNI investors who prefer customised service are not likely to be drawn to mass based online platforms. The differentiator is the intangible, but much valued factors of trust and reliability.
As for the math behind the myth that regular investments cost more than direct investments (except if self-done), reserve that debate for a later date.
Ashok Kumar heads LKW-INDIA. He can be reached at ceolotus@hotmail.com