With the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) offering a platform for buying and selling mutual funds, investors across the length and breadth of the country would now be able to buy and sell units of MFs registered with bourses for this facility, without having to locate a distributor.
Existing mutual fund investors who intend to buy more units will also benefit as this system will allow them to keep track of all investments under a single statement. Moreover, buying and selling will become more efficient and transparent , particularly if investors choose to transact through a demat account.
How does the new system fare on a cost-benefit analysis?
For those who purchase MF units directly through the AMCs’ websites, opting this route will result in an increase in cost, as they will have to shell out the brokerage as well as demat fees. “Entry load has been eliminated in mutual funds. Someone using the online brokerage portal, though, will be charged by the trading company. While the average brokerage in such transactions could be around 0.5%, the DP could levy an account opening charge of around Rs 250-300 , in addition to an annual maintenance charge of around Rs 400,” says Anil Rego of financial planning firm Right Horizons. The brokerage and demat transaction fee could vary as per the broking firm, depository and the DP, respectively . This apart, while trading equity MFs through exchanges, you will have to shell out securities transaction tax (STT) as well.
Though cost seems to be a factor for those who do not have a demat account, the impact will be minimal for those who already are demat account holders. “If an investor decides to open a demat account only for investing in MF units, then his/her cost could increase. However, this will not be the case for those who use their existing demat account for trading in equity shares,” points out Vineet Arora , head of product and distribution, ICICI Direct.
TRADE SMART
A FOUR-STEP GUIDE TO PURCHASE OF MUTUAL FUNDS THROUGH STOCK EXCHANGES
STEP: 1 GETTING STARTED
OPEN A DEMAT account with a depository participant, who operates as an agent of the two depositories in the country — National Securities Depository (NSDL) and Central Depository Services (CDSL). You would also need to open a trading account with an eligible stock broker (who is registered with the association of mutual funds — AMFI). The know-your-customer (KYC) procedure will be conducted by the depository participant while opening the demat account.
STEP: 2 TRADING
FOR BUYING/redeeming MF units, like in case of stocks, you will have to send the instruction to your broker, who will, in turn, place the order on the terminal on your behalf, after collecting the money and brokerage from you. During redemption, however, the proceeds are directly credited to your account by the mutual fund.
STEP: 3 SETTLEMENT
WHILE PURCHASING units, the transactions are settled on a T+1 basis. Redemptions are done on a T+3 basis for equity MFs and T+1 for debt MFs. Transactions, however, cannot be initiated after trading hours, as NSE terminals shut at 3 pm, says UTI AMC chief marketing officer Jaideep Bhattacharya. Under the existing system, you can go to your distributor or the mutual fund after 3 pm, but it’s the next business day’s NAV that will be taken into account.
STEP: 4 KEEPING TRACK
IN TERMS of convenience, the advantages are similar to investing online through the AMC’s website — reducing the clutter of paperwork and speedy execution. However, here, the holding report, which is submitted by the DP (and not the AMC, unlike the existing format) will provide a snapshot of the stocks as well as the MF units that you own, presenting a more holistic picture of your total investments.
WHAT’S GOOD
MF schemes can be purchased anywhere in India Depository statement gives you holistic picture of your MF investments Lesser paperwork Speedy execution
WHAT’S NOT
Costlier for those who are not already demat accountholders Settlement cycles are same as existing Transactions only during exchange trading hours Not all MF schemes available at present
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