With the launch of National Stock Exchange of India’s Mutual Fund Service System (NSE MFSS) and Bombay Stock Exchange’s StAR MF platforms, investors are now allowed to buy and sell mutual funds through their existing brokerage accounts.

The important thing to understand is that the NSE and BSE platforms have been launched as an additional channel for MF investing in India. Because these platforms have at times been referred to as being online, it is natural to form comparisons with online mutual fund investment platforms like Fundsupermart. Some of the queries we have received have been about whether Fundsupermart will provide the facility to buy/sell through the stock exchanges. However, the MFSS and StAR MF platforms are just one more way to invest in MFs and do not really affect existing channels.
So, if you are an existing MF investor and are not really looking at changing the way you invest, the NSE and BSE platforms do not affect you. AMC-related rules and procedures do not change, and NAVs will still be declared end of every day.

In terms of procedures to open account, buy and sell mutual funds, the stock exchange route is very different from existing channels. We capture some salient differences with reference to an online platform to help you understand better.

You need an agent

For trading through the NSE and BSE platforms, you need to register yourself with a “trading member broker” who is also AMFI certified. Simply put, you need an agent who is registered with either NSE or BSE (depending on which stock exchange you choose), and who is also registered with AMFI as a certified mutual fund distributor. All your requests for buying and selling MF units will go through this trading member broker whereas on an online mutual fund platform you need a normal investment account for yourself or your family wherein you can purchase and redeem funds directly online

Advantage equity investors

With online platforms, you need no existing infrastructure (except a bank account that allows you to make payments online) to get the following benefits:

• Ability to transact online
• Consolidated holding and reporting of all your mutual fund units (across AMCs)

However, the real advantage of the stock exchange platforms is for investors who are already dabbling in the share market. Only if you fall into this category and choose the demat form of holdings for your MF units, can you use your existing broker relationship (if your broker is AMFI-certified, that is) to consolidate both equity and MF holdings in your existing demat account.

If you do not have an existing broking and demat account, then you would need to either opt for physical form of buying, selling and holding your MF units, or open a new broking and demat account.  The physical format of holdings needs you to fill and sign an application form every time you wish to buy into an MF scheme and a redemption slip every time you intend to sell your units. You would also receive separate statements from each AMC, which means you do not have a consolidated view of your holdings.

Method of Payment

In an online platform you make a direct online payment transaction to the AMC whose fund you are purchasing. When investing through the NSE/BSE platforms, you would issue a cheque to your broker, who would in turn, settle the payment with the AMC.

Transaction Options

Currently, the NSE and BSE platforms do not allow switching of funds, and options of systematic investment plans (SIP, STP, SWP, etc.) are not available. Online platforms allow these transactions.

Charges

With SEBI having abolished upfront commission at the time of purchase of mutual funds, all channels have more or less settled on the kind of fee they would charge the investors in lieu of services rendered. The full extent of charges that investors will incur in the case of MFSS and StAR MF platforms is still not clear. NSE and BSE have agreed to forego any transaction charges up to April 2010, but they will likely be levied after that. Brokers offering access to these platforms vary in the charges they will levy. The charges connected to your demat account will be levied on MF unit transactions as well. For online platforms though, sales and transaction fees are zero in most cases.

Conclusion

The stock exchange terminals will bring in more efficiency in the way mutual funds are transacted. But at the same time they offer limited value add to the retail investors. Going forward, these investors would seek advisory services to manage their investments, inputs on their mutual fund portfolio and fund analysis. With this article, we hope investors could clarify questions around how stock exchange terminals work and whether it affects the existing mode of investing or not.

Happy Investing!