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MFs on exchanges to boost sales, lower investor costs

You will now have the option of buying and selling mutual funds (MFs) through brokers at stock exchanges. The fee you could be in the region of 0.25 to 0.5 per cent of the amount invested, reports Falaknaaz Syed.

business Updated: Nov 15, 2009 21:13 IST
Falaknaaz Syed

You will now have the option of buying and selling mutual funds (MFs) through brokers at stock exchanges. The fee you could be in the region of 0.25 to 0.5 per cent of the amount invested.

The Securities and Exchange Board of India (Sebi) had last week issued a circular permitting registered stock brokers of registered stock exchanges to transact in mutual funds.

Experts feel the brokerage would depend on the level of service provided, but would more or less be the same as charged for share deals.

Uttam Bagri, secretary, BSE Brokers Forum said, “Ideally brokers charge 25 basis points (0.25 per cent) of the value of the stock market transaction as the brokerage. Competition and market forces would ensure the brokerage remains at the same level for MFs too.”

“The new move is in the interest of investors as it gives them the option of getting the best service at the lowest cost. Depending on the level of service, brokers and clients will negotiate the fee,” he felt.

There are around 1,600 active stock brokers in the country. The Sebi circular said the stock exchanges have a reach in 1,500 towns and cities through over 2 lakh stock exchange terminals — which can be used for facilitating the MF transactions also.

“More than 50,000 to 60,000 agents have cleared the AMFI exam, but very few around 20,000 distributors are active in selling mutual funds,” said Ranjeet S Mudholkar, Principal Advisor, Financial Planning Standards Board of India. “The financial inclusion of mutual funds is much lower than banking and insurance products. With the new move, a larger number of investors will get the opportunity to invest in MFs.”

In the new scheme of things, several drawbacks of the present manner in which MF transactions are done, will be eliminated, felt Deven Choksey, MD and CEO of KR Choksey Shares and Securities. “With trading for mutual funds being permitted on stock exchange, the price discovery and settlement will happen on a real-time basis. Inefficiencies such as time taken to send data to the AMC, which results in the investors getting the previous day’s price, will be removed,” he said.

In effect, Sebi’s move would bring MF transactions under the stock exchange umbrella, as brokers already distribute MFs.

“Now, they can distribute through the stock exchange,” said a senior official of Birla Asset Management. “We will have to wait for a week for NSE and BSE to issue the regulations.”

In August, Sebi abolished the 2.25 per cent entry load on MFs. Distributors were given the option of collecting commissions directly from investors.

Paras Adenwala, Managing Director, Capital Portfolio Advisors said, “With the withdrawal of load, several distributors found it less lucrative to sell MF products. As a result, the volume of sale of several MF products has declined. The new directive is aimed at broad basing the distribution of MFs by setting up a new channel of distribution altogether.”