Exchanges can offer direct mutual fund plans after approval from Sebi

The direct plans offered by mutual funds (MFs) can get major boost with the Securities and Exchange Board of India (Sebi) now allowing investors to use exchange platforms to buy and sell their units, which could lead to exchanges offering such plans to MF investors.

"In order to further increase the reach of this platform, it has been decided to allow investors to directly access infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from mutual fund and asset management companies," Sebi said in its circular on Wednesday. 

"This is expected to provide level playing field to exchange MFdistribution platforms vis-a-vis MF utility," said Ganesh Ram, Head of BSE Star MF. 

At present , the assets under direct plans stand at Rs 11.97 trillion, whereas those under regular plans stand at Rs 15.89 trillion. 

Apart from BSE Star MF, NSE NMF II is another exchange platform which is presently used by MF distributors and other intermediaries for transactions. 

Earlier, Sebi had allowed exchange platforms to be used by MF distributors for buying and selling MF units on behalf of their clients. Later, registered investment advisors were also allowed to use the platforms of exchanges. 

The market regulator in the past has expressed its interest in growing the asset base under direct plans. 

With the view of investors using low-cost options, the regulator in the past has urged the MF industry to increase awareness for direct plans and exchange traded funds. 

A direct plan is a mode of investment in which the MF investor bypasses any intermediary and makes a 'direct' investment. Such plans are available at lower expense ratios as the investor is not required to bear commission expenses that MFs pay to distributors. 

According to industry participants the move could help the industry deepen penetration in smaller cities -- also known as beyond the top-30 citites (B-30). 

"In smaller citites, digital channels can help in onboarding investors. In these parts , we see lowered presence of intermediaries and such a move can make a larger impact," said chief executive of a fund house.