Say move to deepen market but existing distributors may get annoyed.
The recent move by the Securities and Exchange Board of India (Sebi) to facilitate mutual fund transactions through the existing stock exchange infrastructure has found many takers, with broking companies keen to venture into this new area within a fortnight.
Brokers said trading in MF units would help them enhance volumes. In return, investors would save costs, they said. However, they added that this would be different from equity transactions and require a dedicated team.
Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, said, “We are set to offer this value-added service as it will provide transparency, reduce costs from investors’ perspective and increase volumes.”
A majority of existing asset management companies (AMCs) do not have a wide network and are limited to a few cities. On the other hand, broking companies have spread to semi-urban regions and are now focusing on retail investors.
Dinesh Thakkar, chairman and managing director of Angel Broking, said, “There is no reason why should we not get into mutual fund trading. AMCs do not have the reach that broking firms can provide.”
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Oswal said: “Our existing infrastructure, with a distribution network having access to 560 cities across the country, will be adequate to offer this service. What will we require is mutual fund advisors.”
Trading of MF units on any day would be at the net asset value (NAV) fixed for that particular day, said brokers. Though most brokers are enthusiastic, some say how things turn out is yet to be seen.
Mohan Natarajan, executive vice-president at Edelweiss Capital, said, “Tracking equity and mutual fund markets are two different things. In mutual funds, it is the fund manager’s call which matters. Moreover, the fund market is not as volatile as equity markets. In case it remains an investors’ game, volume may not be there.”
Fund houses agree that using the exchanges’ infrastructure will expand the distribution network significantly. “However, it could annoy existing distributors and small town advisors,” said the chief investment officer of a leading domestic fund house.
Existing MF distributors and financial advisors are taking this as another challenge to their already shrinking business after the ban on entry load in equity schemes came into effect in August.
According to them, it is doubtful if the issue of low penetration of MF products can be addressed by using the existing infrastructure of stock exchanges.
“Though the market regulator wants to increase mutual funds’ reach to the masses, how will such a move increase retail participation? Existing clients of broking firms are likely to go for this service. Moreover, how many brokers would like to take care of small mutual fund investors who invest far less money than equity investors?” said a leading MF distributor who did not wish to be named. According to the equity head of a foreign MF, “Using the exchange’s network will enhance the fund market, resulting in easy transactions. However, the platform has to be more complicated to take care of the various intricacies involved in trading, such as track record of funds, etc. Else, it will be difficult to make investors understand what to buy.