Mutual funds have not been included in the list of the depository participants (DP) to a depository in the ordinance framed by the Securities and Exchange Board of India (Sebi).
The Association of Mutual Funds in India (Amfi) is keen on mutual funds being included as a depository participant in the ordinance and has approached Sebi on the issue.
"The idea is to become a direct participant to a depository, as an option. There is clearly an advantage on the cost factor, as the cost per transaction which is payable is quite high. With the regulator pushing us on keeping costs in check, an inclusion in the DP list would make much more sense," K N Atmaramani, Tata Asset Management said.
In the case of off-shore funds who are based abroad and hence unable to handle the physical aspects of stocks, operating through a custodian makes sense.
However, for a local player with a strong presence in the country the need for a custodian is not felt with the same intensity, argue mutual fund players.
In the event of financial institutions and banks being included in the list of depository participants, why should mutual funds, which also forms a sizeable portion of the players in the market, be left out, they aver.
Even cases of a custodian handling the physical aspect makes sense, and is agreeable to them, but in instances of dematerialised scrips, the routing through custodian should not be mandatory, they say.
"And anyway the AMC lands up chasing all the corporate operations of the holdings, which is ideally the job of the custodian," says a leading domestic player.
Some beg to differ. Says S K Mitra, director, Birla Capital International AMC, "My personal opinion is that an asset management company should retain fund management as its niche and concentrate only on that aspect leaving the peripheral things as handling the depository operations to specialists. There would be a cost for it, but that would have to be incurred even to appoint a team to do the job in-house."
"In case of a multiple depository and the simultaneous existence of paper, there is the issue of reconciling between these two separate sets, for which the services of a custodian is preferable. Additionally, there is scope for other services like corporate action, cash management, better reporting, fund accounting etc, for which I would rather avail the services of a custodian," says V Krishnan, asst vice-president, Alliance Capital,
"However, once the NSDL gathers enough depth, like say about 100 scrips, it could make sense for AMCs to have an option to become a DP," he added.
Another opinion among marketmen is that it is ideal to observe the initial stages of the functioning of NSDL before taking a stand on the issue.
"The custodian handling the dematerialised scrips, once the depository gets underway, would ensure a more arms' length relationship between the different functions. Agreed, that the direct participation would work out a lot cheaper, but it is not an immediate issue. I would rather watch how it works before taking a decision on this aspect," Richard Overton of ITC Threadneedle said.
It is a long-term issue, agrees Atmaramani. "The issue is of including the MFs as a section over a period of time, especially around the time when there are say about 100-200 active scrips in the depository.
When an asset management company finds operating through the depository directly a more viable option, it should be able to exercise it," he added.
