November 21, 2009

life in financial markets: better late than never

Here is something I wrote (in the magazine I presently work for) on Sebi's recent allowance to mutual funds and stock exchanges to settle purchases and redemptions in mutual fund units through the brokers' trading terminals:

Getting wings
It could have been a reality a few years back itself but the stock exchanges have just been allowed to settle purchase and redemption transactions between investors and asset management companies' (AMCs') various mutual fund offerings. The Securities and Exchange Board of India has modified its mutual regulations such that transactions, 'know your customer' compliance and the holding of securities can happen in the same manner as in equity shares.
So, as an investor, you can buy and redeem units of an open-ended or close-ended mutual fund scheme on a NSE or BSE trading terminal through the same equity broker through whom you presently buy and sell stocks. You also hold the units in the same demat account of yourNSDL—or CDSL—DP as you hold your stocks in. The price at which units are bought or redeemed, however, will be fixed, based on same-day or next-day NAV depending on the time of the day you trade. You would also have to pay between 0.2% and 1% as brokerage charge.
The conventional way of buying or redeeming funds will continue. The stock exchange route will be an additional route. The development, however, increases the short-term pain for mutual fund agents who have, in recent months, been facing the wrath of Sebi, mainly in the form of the ban on entry loads that led to a stoppage of receipt of commissions from AMCs.
"But independent fund selling agents will not suffer for too long," says Mukesh Dedhia, director at Ghalla Bhansali Securities, a NSE-broker firm as well as registered agent with several AMCs. "The market for mutual funds will itself expand with trading terminals spread all over the country becoming available and the independent agents can become fund-selling sub-brokers with the main NSE or BSE brokers." We second that.

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