Trading in mutual funds (MFs) through stock exchanges has not picked up, as brokers are not finding it lucrative to promote the new platform.
According to officials at various brokerages and fund houses, the reward for the risk they undertake when an investor defaults in payment is not commensurate with the commission they earn.
Brokers are also not keen to walk the extra mile to acquire clients, who are not essentially from their equity customer base. Another deterrent is that only 14 out of 37 fund houses in the country have joined the new system. Also, retail investors find the cost of investing through exchanges higher than trading through distributors.
| SLOW START | |||
| MF trading platform on exchanges | Number of trades since opening | Sales (Rs crore) | Redemptions (Rs crore) |
| BSE | 1,446 | 17.84 | 12.63 |
| NSE | 1,639 | 6.54 | 1.65 |
“Acquiring new clients to invest in mutual funds through exchange platforms is not very rewarding for many brokers,” said Maju Nair, assistant vice-president at broking firm Sharekhan.
A broker has to pay the exchange one day after receiving the buy order from an investor without any collateral. As mutual fund units are directly credited in depository accounts, brokers face a problem in case of a payment default. For such a risk, the 50-basis point commission is too less, they say.
Though brokers earn a similar commission in equity, the mode of operation is different. A broker gets shares after settlement in his account and transfers them to the client’s depository account only after receiving the full payment.
The risk of default increases in cases where the facility of online fund transfer is not used. “In smaller cities, where brokers are not getting funds online, they have to bear the risk until the payment instruction by the investor is cleared,” said Rakesh Goyal, senior vice-president, Bonanza Portfolio.
Also Read
Fund houses say the response to the online platform has been dismal as MF schemes are ‘push products’.
“Mutual funds are still ‘push products’ and distributors have to go to investors and convince them. We have not reached a stage where an investor walks into a brokerage house and buys mutual funds,” said the chief investment officer of a leading fund house on condition of anonymity.
Small investors also find the distributor model easy compared to the broker route, where they have to open a depository account at a cost of Rs 300-350. “The cost for retail investors can come down if depositories work out a model to provide accounts to investors who want to invest only in mutual funds at a lower price,” said Vinesh Menon, head, retail distribution, Bajaj Capital.
There was expectation that equity investors would buy mutual fund schemes online. This has also not happened. “It was presumed by the exchanges and the industry that there might be some overlapping of equity clients and mutual fund clients of broking houses. However, that is not the case now,” said Nair of Sharekhan.
While the National Stock Exchange started its mutual fund platform in late November, the Bombay Stock Exchange introduced it in December.