Wooing MF investors with ‘go demat' drive

With mutual fund investors now having the choice of converting their folios into dematerialised accounts, registrars and broking firms are going all out to attract investors into holding demat accounts with them.

Registrars and broking firms, which have the responsibility of converting these accounts, are leaving no stone unturned in this pursuit. Some registrars are even willing to take a hit on their books for it.

cost of conversion

“We are taking the entire hit of the conversion on our books. The cost of converting the paperwork into an online account is Rs 3 and that of the courier service is Rs 25 per scheme. If we provide both services, then the conversion cost comes down to Rs 25 per scheme. We are not charging the investors for the service, nor will the fund houses reimburse us,” explained Mr Rakesh Goyal, Senior Vice-President, Bonanza Portfolio.

Bonanza has an investor base of about 1.75 lakh depository participants and about 3 lakh investors availing the services of its broking firm.

“It's a very calculated move. Our aim is to attract other potential investors. Currently we handle equity AUM worth Rs 2 lakh crore through mutual funds and we aim to bring in about Rs 5,000 crore more into the fold,” Mr Goyal added.

But not all registrars and broking firms are too excited about this move for now. Though they agree there are advantages to it, they say that there is also a flip side to it.

“Earlier, it was possible for the investors to interact with the fund houses directly. The non-demat way of transacting meant that investors got customised services from the fund houses. They could log on to the Web site of the AMC and avail themselves of their services. But that would not be possible in the demat account format. There would be an intermediary involved,” said a spokesperson for a leading registrar company.

But keeping in mind the advantages for the investors, most broking firms and registrars are likely to follow suit and provide demat services to their investors.

“Eventually, all broking firms will have to do the same. Any broking firm will want to provide these services as it gets total control of the entire transaction. Earlier the investor had to deal with a large number of people for these transactions. Also, broking firms having control over the transaction process means that purchase of each unit will start yielding brokerage income, which was not possible before,” said Mr Prakash Diwan, Head of Institutional Equity, Networth Stock Broking.

Not a big hit

However, Mr Diwan believes that the hit on the books is not that big.

“First of all the number of investors not holding DP accounts is very small. The challenge will be to get those investors who avail of our services but do not have a DP account with us,” he added.

Source: http://www.thehindubusinessline.com/2010/09/08/stories/2010090850671000.htm