Trading in MF units allowed

Investors will soon be able to buy and sell mutual fund (MF) units on stock exchanges.

India’s capital market regulator on Friday announced this game changer for the Rs7.62 trillion MF industry, three months after it abolished upfront commissions that were being paid to MF distributors.

“The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over 200,000 terminals can be used for facilitating transactions in mutual fund schemes,” the Securities and Exchange Board of India (Sebi), said in a late evening release.

Currently, investors buy MFs either from a distributor or from asset management companies (AMCs).

A few online portals, too, sell these units. The exchange platform will be a critical new channel for the industry, say asset managers.

A.Balasubramanian, chief executive officer (CEO) of Birla Sun Life Asset Management Co. Ltd that manages Rs65,053 crore, said the move will help both the AMCs as well as the investors.

“It will be a cost-efficient channel for both. It will not take much time to implement as we will leverage the existing technological platform and nationwide network established by the exchanges,” he said.

In order to be able to sell MF units through exchanges, stock brokers will need to pass a certification course offered by industry lobby, Association of Mutual Funds in India, Sebi said.

The move comes as a breather to AMCs, hit hard by the market regulator’s move to ban upfront commissions charged by asset managers from 1 August.

The industry has been seeing more redemptions than sales since August. In a recent interview with Mint,U.K. Sinha, chairman and managing director of UTI Asset Management Co. Ltd, said: “No industry can survive with this kind of negative sales.”

“Mutual funds will have a wider geographic reach through exchanges as equity brokers will become eligible to sell fund units like shares. At present, 70-80% sales of mutual funds come from 10 cities, but with this move, funds will be able reach across the country where the two depositories record share sales,” said Dhirendra Kumar, CEO of New Delhi-based MF tracker Value Research.

He, however, does not see any immediate rise in assets of MFs even though this will simplify the procedures of investments in such instruments.

According to Piyush Surana, CEO of Shinsei Asset Management (India) Pvt. Ltd, the exchanges cannot replace the sales function (of distributors) and it is only an additional procedural facilitation. “The move makes mutual funds more accessible to investors, but someone has to sell the fund and someone has to buy. Essentially, one needs to convince the investors (to buy and sell),” he said.

Ashutosh Wakare of Money BEE Institute, a training institute for MF distributors, said it requires a transformation of mindset of investors as “you are bringing a passive investor into an active platform”.

“The idea is to facilitate the buying of mutual fund units through an avenue which has a greater reach. But, I don’t see any distinct advantage of this move, because mutual funds will still be required to be sold through the conventional concept selling methods,” said Hemant Rastogi, CEO of Wise Invest Advisors Ltd, an MF advisory firm.

It is not known when the exchanges will start trading of MF units.

A few online portals that help investors buy and sell MF units say the exchanges are in talks with them. Maju A. Nair, associate vice-president (MF- product manager), Sharekhan Ltd, said the National Stock Exchange (NSE) has already made a presentation of its proposed platform to the brokerage. He is meeting the Bombay Stock Exchange (BSE) soon. “It will make life easier for the online portals as the depositories will take care of the back-office—interactions with registrars,” he said.

Derivatives expiry:
Sebi on Friday also allowed the stock exchanges to set the expiry day for equity derivative contracts. At present, the expiry day for equity derivatives is the last Thursday of every month on both the stock exchanges—NSE and BSE.

Source: http://www.livemint.com/2009/11/13225958/Trading-in-MF-units-allowed.html

SEBI allows registered brokers to deal in mutual fund products

In the light of entry load abolition to distributors.

Stock brokers need to clear AMFI certification to become distributors
No price discovery, just another order routing system for MF units
Investors can hold units of MF schemes in demat accounts

In a move that could considerably widen the distribution network for mutual funds, SEBI on Friday allowed registered stockbrokers to transact mutual fund units on behalf of their clients through the stock exchange mechanism.

“The infrastructure that already exists for the secondary market transaction through the stock exchanges with its reach over 1,500 towns and cities, through over two lakh stock exchange terminals can be used for facilitating transactions in mutual fund schemes,” the SEBI circular said.

Stockbrokers will be eligible to be considered as official points of acceptance, the circular said. These stockbrokers need to pass AMFI’s (Association of Mutual Funds in India) certification examination, and become empanelled distributors.

Every mutual fund has to disclose the locations of its official points of acceptance in its offer documents and Web sites.

Selling through the stock exchange mechanism basically means an additional order routing system for buying or selling mutual fund schemes; there is no price discovery, said a senior official at a transfer agent’s office.

End-users can use the convenience of their neighbouring broker’s office for their mutual fund transactions, said Mr Mayank Shah, CEO of Anagram Stock broking.

Whether brokers can charge a fee for the service or not is unclear. But Mr Shah felt a fee structure would evolve once the system is in place.

This issue must be seen in the light of SEBI abolishing the entry load on mutual fund investments for distributors, starting August 1. This affected distributor income as well as inflows into equity schemes.

Currently investors roughly pay 1.25 per cent as commission to distributors; 0.75 per cent is upfront commission and the rest in the form of “trail commission” (when an investor remains invested in his fund).

“Once the broker starts acting as a distributor, there is an issue about what commission he might ask for and whether the client would be ready to pay that or not,” said a broker.

The SEBI circular on Friday also said that investors can hold units of mutual fund schemes in dematerialised form, and that the demat statement given by the depository participants would be deemed adequate compliance with SEBI norms.

Further, the stock exchanges should provide for an investor grievance handling mechanism to handle disputes between brokers and their clients. The time-stamping for transactions would be in the form of a confirmation slip issued through the stock exchange mechanism. The markets regulator has asked the stock exchanges to provide detailed operating guidelines for facilitating transaction in mutual funds on their platform by their member-brokers.

Source: http://www.thehindubusinessline.com/2009/11/14/stories/2009111451880100.htm