Mutual fund transactions just a click away

Online platforms for mutual funds (MFs) could soon become a reality. With the Securities and Exchange Board of India (Sebi) nudging the exchanges – the Bombay Stock Exchange and the National Stock Exchange – to launch such platforms, investors could soon find that buying or selling of mutual funds could be much easier.

Jaideep Bhattacharya, chief marketing officer, UTI Asset Management Company (AMC) and chairman of the committee on Common Industrial Platform, said, “The online platform will be a consolidated and single point of access for the industry.”

The first phase or of this online platform will be in place by March 2010. Sources at the Central Depository Securities Ltd (CDSL), a clearing house that will be involved with this venture, said that initially, this would an order-entry platform and not a trading platform. But transactions would be much easier – much like investing in a stock. According to sources, the process could work like this.

An investor will have to get registered with a broker and open a demat account (which need not be necessarily linked to a bank account). The investor will then place an online order with the broker or distributor (who could be a broker himself or deal through a broker). This broker, in turn, will enter the order in the exchange system.

The broker or the distributor will do a pay-in to the clearing house both at the time of purchase and redemption of funds. Once the payment is executed, it will be sent to the AMC and the information of the transaction will be passed on to the Registrar and Transfer Agents (RTAs). The units of the scheme will be directly transferred to the account by RTA.

At present, Karvy Computershare and Computer Age Management Services (CAMS) are the two big RTAs. At the time of redemption, the amount will be directly credited to the investor’s bank account.

The settlement of the transaction will then be done by the exchange’s clearing house mechanism. The settlement for purchase of units will be done on a T+2 basis, while redemption will be done on a T+3 basis.

The advantage of having this demat account will be aplenty. Now, if you have more than one scheme in your portfolio, the units and its records are maintained by different AMCs. The distributor consolidates this data when he sends you a monthly/ quarterly report.

This account will allow you to keep a track of all the units of different schemes that have been purchased over time, quite similar to stocks in the demat account.

In addition, if one wants to replace one scheme by another within the same AMC, they will be able to do so, though an exit load will be applicable. The platform will also allow a seamless switching of schemes.

The onus will be on the broker or distributor to adhere to the Know-Your-Customer (KYC) norms.

Industry sources said that the number of access points would increase substantially because of NSDL and CDSL. At present, AMCs have only 500 offices across the country, whereas these two organisations, by themselves, account for over 1,000 terminals, thereby increasing the reach of mutual funds substantially.

According to sources, this plan is only for the first phase of the online transaction platform. Its second phase will see payments being made directly to exchanges. The first phase is likely to be launched by March 2010. And the second phase will kick off within three months of the completion of the first phase.

Hemant Rustagi, CEO, Wiseinvest Advisors, said, “This platform will help in paperless transaction, will make buying and selling easy and should also improve efficiency.”