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MFs on stock exchanges: fund houses strategise

Market regulator SEBI’s proposal to allow mutual funds (MFs) to trade on recognised exchanges through brokers has asset management companies thinking up necessary strategy changes.

business Updated: Nov 22, 2009 20:30 IST
Devraj Uchil

Market regulator SEBI’s proposal to allow mutual funds (MFs) to trade on recognised exchanges through brokers has asset management companies thinking up necessary strategy changes.

Firms such as India Infoline are planning to merge the MF sales vertical with broking business. “This will help us serve our customers better with one relationship manager being the interface of the customer for all the products including mutual fund,” said Nirmal Jain, Chairman and Managing Director of India Infoline group.

Experts foresee that MF schemes are likely to turn from marketing or sales-driven products to performance-driven ones. AMCs would have to draw up new strategy to get investor attention, they felt.

There is also a question on whether SEBI (Securities and Exchange Board of India) would allow investors to hold both stocks and MFs in the same demat account.

AMCs will be able to survive — even thrive --- if they are able to generate a critical mass of assets under management. This will happen when investors benefit, said experts.

“MF units cannot be traded based on price movements, like stocks. They would have to be based on Net Asset Value (NAV) at the close of market. This would put the onus on performance of MFs and not just the marketing push. This would benefit investors a lot,” said Sandip Sabharwal, chief executive officer --- portfolio management services of Prabhudas Lilladher.

“Within 2-3 months, SEBI will issue guidelines. The guideline will also clarify whether NAV can be changed during the course of the day. But if we have to imagine from the current system then for a day mutual fund schemes will keep the prices fixed for buying and selling,” said Jain.

Meanwhile, not all fund houses are gung-ho about the proposal. “We are unsure what SEBI has in mind and how it would be implemented. We are waiting for further clarity on the issue before we can form any concrete strategy,” said the spokesperson of a leading securities firm, not wanting to be named.