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The improved sentiment in the equity market has boosted volumes of mutual fund (MF) transactions routed through stock exchange platforms. The number of MF orders on both the exchanges — BSE Star MF and NSE Mutual Fund Service System (MFSS) — jumped to 1.9 million in FY15 from 819,000 the previous year.
Investors have been reluctant to use these because of the requirement to open a demat account to transact. Volumes had been thin and mostly driven by brokers putting money in liquid funds, according to experts. Should investors now look at the exchange platforms to buy and sell MF units? The Securities and Exchange Board of India (Sebi) did away with the need to use a demat account to buy and sell MFs on the exchanges in December 2014. No demat account means investors no longer have to bear costs associated with maintaining one.
So far, however, only the National Stock Exchange offers the facility to buy and sell MF units without a demat account, through its MF Simplified platform. MF Simplified offers a consolidated portfolio view and a single cheque payment mechanism, and does away with the need for distributors to hand in applications separately to the registrar and transfer, or R&T, agents. These facilities are not available on NSE's MFSS or BSE Star MF platforms. These platforms suffer from a few other glitches as well. For instance, investors cannot switch in and switch out of schemes or do SIPs. Then, units purchased take a day or two to get credited into investors' accounts. NSE MF Simplified supports switches, SIPs and STPs.
“The existing stock exchange platforms, BSE Star MF and NSE MFSS, can be a bit confusing for retail investors. Distributors, too, are not keen to use the platform because of the ambiguity surrounding trail commissions and the complexity of the process,” said Manoj Nagpal, chief executive officer, Outlook Asia Capital.
According to him, investors who want to go direct will be better off transacting either through the individual websites of the fund houses or through MF Utility, while those who require hand-holding can go through distributor-led platforms such as Fundsindia and Fundsupermart or NSE's new MF Simplified platform.
Market participants believe MF Utility, a centralised distribution platform, might become a bigger draw in the future. The biggest advantage of MF Utility is that unlike the exchange platform, it offers both direct and regular plans. Also, while MF Utility is free to both investors and distributors, NSE's MF Simplified platform requires distributors to pay a refundable deposit of Rs 15,000 to become a member, as well as processing fee of Rs 2,500 and annual renewal fee of Rs 2,000. “The system was thrown open to investors on March 4. It's early days still but the usage of the system is picking up. We have about 4,000 common account numbers as of now,” said V Ramesh, managing director and CEO, MF Utilities India.
Investors might have to wait a while before they start using both the MF Simplified and MF Utility platforms. This is because the former has empanelled only 11 asset management companies (AMCs), while the latter has 25 AMCs on board.
Here is how the NSE’s MF Simplified platform works. First-time investors have to do their know-your-customer, or KYC, and register with the distributor. The distributors punch the buy order into the MF Simplified system on behalf of the client. The settlement of the subscriptions is done via the settlement system of National Securities Clearing Corporation and money is transferred to the MF Scheme account for deployment. For redemption, the investor has to approach the distributor who will punch in the sell/redemption order into the system. This, then, triggers an electronic submission to the Registrar and Transfer Agent (RTA). The RTA will inform the AMC accordingly and credit the redemption proceeds into the investors' registered bank account number. An email/SMS notification is then sent to the investor.
Investors have been reluctant to use these because of the requirement to open a demat account to transact. Volumes had been thin and mostly driven by brokers putting money in liquid funds, according to experts. Should investors now look at the exchange platforms to buy and sell MF units? The Securities and Exchange Board of India (Sebi) did away with the need to use a demat account to buy and sell MFs on the exchanges in December 2014. No demat account means investors no longer have to bear costs associated with maintaining one.
So far, however, only the National Stock Exchange offers the facility to buy and sell MF units without a demat account, through its MF Simplified platform. MF Simplified offers a consolidated portfolio view and a single cheque payment mechanism, and does away with the need for distributors to hand in applications separately to the registrar and transfer, or R&T, agents. These facilities are not available on NSE's MFSS or BSE Star MF platforms. These platforms suffer from a few other glitches as well. For instance, investors cannot switch in and switch out of schemes or do SIPs. Then, units purchased take a day or two to get credited into investors' accounts. NSE MF Simplified supports switches, SIPs and STPs.
“The existing stock exchange platforms, BSE Star MF and NSE MFSS, can be a bit confusing for retail investors. Distributors, too, are not keen to use the platform because of the ambiguity surrounding trail commissions and the complexity of the process,” said Manoj Nagpal, chief executive officer, Outlook Asia Capital.
According to him, investors who want to go direct will be better off transacting either through the individual websites of the fund houses or through MF Utility, while those who require hand-holding can go through distributor-led platforms such as Fundsindia and Fundsupermart or NSE's new MF Simplified platform.
Market participants believe MF Utility, a centralised distribution platform, might become a bigger draw in the future. The biggest advantage of MF Utility is that unlike the exchange platform, it offers both direct and regular plans. Also, while MF Utility is free to both investors and distributors, NSE's MF Simplified platform requires distributors to pay a refundable deposit of Rs 15,000 to become a member, as well as processing fee of Rs 2,500 and annual renewal fee of Rs 2,000. “The system was thrown open to investors on March 4. It's early days still but the usage of the system is picking up. We have about 4,000 common account numbers as of now,” said V Ramesh, managing director and CEO, MF Utilities India.
Investors might have to wait a while before they start using both the MF Simplified and MF Utility platforms. This is because the former has empanelled only 11 asset management companies (AMCs), while the latter has 25 AMCs on board.
Here is how the NSE’s MF Simplified platform works. First-time investors have to do their know-your-customer, or KYC, and register with the distributor. The distributors punch the buy order into the MF Simplified system on behalf of the client. The settlement of the subscriptions is done via the settlement system of National Securities Clearing Corporation and money is transferred to the MF Scheme account for deployment. For redemption, the investor has to approach the distributor who will punch in the sell/redemption order into the system. This, then, triggers an electronic submission to the Registrar and Transfer Agent (RTA). The RTA will inform the AMC accordingly and credit the redemption proceeds into the investors' registered bank account number. An email/SMS notification is then sent to the investor.
