Direct vs Regular mutual funds: 5 interesting investment trends from AMFI-Crisil Factbook

The Securities and Exchange Board of India (SEBI) mandated mutual fund houses to offer products through direct route alongside distributors in September 2012, leading to the launch of a slew of direct plans offering starting from January 2013.

Direct plans are cheaper than regular plans and have therefore gained significant traction among investors, especially young ones. However, regular plans still dominate the total assets under management (AUM) in the mutual fund industry, according to the recently released AMFI Crisil Factbook 2024.

The share of direct plans in the total AUM of mutual fund industry increased from 27.4% in March 2019 to 41.2% in March 2024. In comparison, the share of regular plans of mutual funds declined from 62.6% in March 2019 to 58.8% in March 2024.

The following are some interesting trends about direct vs regular mutual funds revealed in the factbook:

1. Regular investors hold their investments longer as direct investments are still evolving

Data shows that regular investments have a longer holding-period profile in comparison to direct investments.

As of March 2024, the share of regular investments with more than 5 years of holding period stood at 21.2% as against 7.7% in case of direct investments.

“This reflects that the impact of guidance given by intermediaries has been helpful in fostering long-term investor discipline historically. However, it must be noted that the direct plans were introduced only in 2013 and hence holding periods of direct investments is still evolving,” AMFI-Crisil said.

2. Many investors continue in regular plans

The AMFI-Crisil data shows corporate investors occupied a dominant position with a 60.4% share of the total direct plan AUM, followed by high-net-worth individuals (HNIs) and retail investors.

In the regular AUM category, HNIs accounted for the largest share (41.6%), followed by retail investors (36.8%) and corporate investors (18.1%).

"The preference for regular plans, particularly among HNIs and retail investors, implies a continued reliance on intermediaries such as advisors or distributors," the factbook said.

3. HNIs have a higher preference for direct plans

HNIs have a higher preference for direct plans as they leverage their financial awareness. Nevertheless, a significant portion of their investments remains in regular plans, reflecting a continued reliance on intermediaries

4. Retail investors have a higher allocation in regular plans

Retail investors have a slightly higher allocation in regular plans, highlighting their ongoing dependence on advisors and distributors.

"This suggests that while cost-effective investing is gaining traction, many retail investors still prefer the ease of access and guidance provided by intermediaries," AMFI-Crisil said.

5. Youngsters prefer direct plans

SIP AUM for investors in the 18-34 age group has surged by more than 2.6 times, from ₹41,209 crore in March 2019 to ₹1.51 lakh crore in March 2024, signalling a growing preference for mutual funds among the younger investors.

Further, the share of direct SIP AUM in the 18-34 age group as a percentage of AUM across various age groups increased from 20.1% in March 2019 to 23.6% in March 2024, while that of regular SIP AUM as a percentage across age groups decreased from 14.9% to 12.0% during the same period.

Explaining the reason for this trend, AMFI-Crisil said, “The shift towards direct plans can be attributed to the growing digital and financial literacy among younger individuals, coupled with the accessibility of low-cost, self-reliant investment options provided by fintech platforms.”