MF could give financial inclusion another dimension

Technology has simplified our lives. So why should it be any different for our investments? If the internet and mobile phones have made banking — one of the most time-consuming affairs — a pleasant experience, mutual fund transactions are not far behind! Come March 2010 and Indian investors will wake up to a gateway of convenience and simplicity as far as their mutual fund investments are concerned. So what is this gateway? Why are newspapers these days flooded with updates about an ‘online mutual fund trading platform’ ? Will this online gateway indeed change the face of the Indian mutual fund industry? Or will it open the doors for the listing and trading of mutual fund schemes on the bourses in future?
The online MF trading platform would probably do to the mutual fund space what dematerialisation (demat) of shares has done for the traders and investors in the equity market. It will be an online convenience gateway where mutual fund schemes can be bought and sold at the click of the mouse, payments directly debited from the bank account and units purchased or sold credited or debited to the investors’ demat account just like the way the shares are traded today. No long waits for the dividend cheques as well, as they shall be directly credited to bank accounts.
The catch here, however, is that while the shares are listed and transacted at the spot price, mutual funds shall be bought and sold at the net asset value (NAV) of the previous day – as is the current practice. Similarly, while the redemption orders will be accepted at a click of the mouse, the current redemption cycle of T+2 days shall continue to exist, meaning, that while the orders will be accepted on Day 1, the redemption proceeds shall be credited to the investors’ account only by the third day.
So where is the value addition? Does an online gateway merely imply saying no to paper? The real convenience stems from the fact that the gateway will empower investor to makes choices. The platform is likely to be designed to facilitate not only buying and selling of mutual fund schemes but will also be loaded with information on various mutual fund schemes, their performances, updates, analysis, trends etc. Moreover, if an investor is unhappy with the performance of a scheme of a particular fund house, say ‘A’ ; he will be empowered to transfer his investments from ‘A’ to a better performing scheme of another fund house ‘B’ within seconds through the click of the mouse. Any applicable exit load shall be automatically deducted from the investment and the balance will be transferred to an absolutely new fund of a new fund house—no paper work or other formalities. While currently too an investor can easily switch between MF schemes, the swapping can be done between the schemes of the same fund house.
Another interesting facet of the online MF portal will be its ability to provide the investors a consolidated view of all their mutual fund holdings. Say an investor has investments in 10 different mutual fund schemes, keeping a track of all of them is tedious. The platform will combine the information on all MF holdings of the investor and present a consolidated screen shot view with the latest NAV to help investor keep track of all MF investments along with their current sale value. In case of systematic transfers, it will now be easier and convenient to keep a track of regular monthly debits in the bank accounts and credits of mutual fund units in the folios. No more waiting for the annual or biannual MF statements by post!
The features are aplenty, but what about the costs? Are these services free of cost?
Market regulator Sebi has scrapped entry loads from the mutual fund investments in order to bring transparency. Keeping that in mind, the new platform will be linked to the demat account of the shareholder and the commission payable on every MF transaction shall be mutually determined between the investor and their respective brokers, who in turn will have to be a Depository Participant (DP).
The online platform may also make life easier for distributors who now find it tough to convince investors to issue separate cheques for commission. As MF trading will now be akin to share trading where the commission will evolve into a small brokerage charge, investors may pay it without much resistance. There are also fairly bright chances that competition and price war between brokerages may make these commissions highly competitive.
Though simplicity and convenience are the two major aspects that the MF industry is aiming to achieve through this platform, it is in fact the reach and the penetration – the grey areas of this industry for a long time now—that it expects to deal with through this gateway. It will thus become easier and much more convenient for those placed in remote districts of the country to invest in mutual funds either directly or through their distributors who will have online access to the portal as the portal is not restricted to demat account holders alone.
To learn more about this MF trading platform and its impact on the fund houses, distributors and the investors, turn to page three where the two honchos of the industry share their views on the new concept.

Source: http://economictimes.indiatimes.com/features/investors-guide/MF-could-give-financial-inclusion-another-dimension/articleshow/5234106.cms

MFs have served both small and large investors well

Mutual Funds have the expertise of managing products across the risk return spectrum. Correspondingly, for large and small investors, mutual funds offer an opportunity for deployment of savings based on individual risk taking capabilities and corresponding return expectations. This unique capability of mutual funds has helped individuals and large/institutional/corporate investors enhance significantly their return on savings over the last decade. The industry in India has some very high quality global and local players, very high quality of regulation and has a long track record of delivering returns in line with risk profile of products across the spectrum.
Mutual funds have offered great value to large and small investors. The industry in its modern form and shape is about 15 years old. The participation of individual investors in the industry has grown significantly in this period and today we have a situation where the total number of mutual fund folios actually exceeds the total number of demat accounts. Thus, more individuals are participating in India’s capital markets through mutual funds than directly through purchase and sale of other securities. This growing family of individual investors is a testimony to the fact that the industry has been able to manage the savings of both large and small investors in a transparent and efficient manner thereby creating value for all.
Investments made by large institutions have in fact helped the mutual fund industry bring down expense ratios for a large number of debt products where the institutions invest significantly. In fact, a study of the industry shows that for most debt products, the expense ratio is significantly below the limit provided under regulation.
Global experience shows that the skill of money management needs to be made available both to individuals as well as to large investors/institutions. In fact, if one studies the example of other countries like Brazil and China that have a large mutual fund industry, one finds a significant participation of institutional investors in mutual funds.
The mutual fund industry in Brazil is over $600 billion and that in China is over $300 billion. While the retail participation in mutual funds in India has increased, we have a long way to go as penetration is very low. However, the efforts of the industry are now resulting in this penetration gradually improving and increasing and investors from over 300 cities now actively participate in investing in Indian mutual funds. The industry has also provided service to institutional/corporate clients in this period.
These institutions/corporates are in turn owned by a large number of individual investors. Availability of skilled money management advice to these institutions has helped them enhance their own return on investments thereby in turn benefiting their millions of shareholders. The industry now has a 15-year track record of managing products across the entire risk return range and delivering high quality consistent returns over a long term timeframe. The focus of our efforts should now be to increase the reach and availability of this expertise available with Indian mutual funds to a wider range of individual and institutional investors to enhance the productivity of capital in our economy.

Source: http://economictimes.indiatimes.com/ET-Debate/MFs-have-served-both-small-and-large-investors-well/articleshow/5237931.cms