After a series of bad news such as entry load ban, mutual funds may finally get some good news from the market regulator.
The Securities and Exchange Board of India is now planning to enable investors to buy and sell mutual fund units through stock exchanges. Fund houses will also be allowed to sell new fund offers through exchanges, helping them to save on distribution costs.
Sources privy to the discussions told Business Standard that a committee under a Sebi executive director has been constituted to look at amendments to the regulations governing stock exchanges, depositories and brokers to push through the move.
Another source said to start with, it would be optional for fund houses to use the platform. Trading on stock exchanges would be in addition to the proposed platform being developed by Association of Mutual Fund of India.
The sources added that Sebi was keen on stock exchange-based mutual fund purchases and sales or redemption because the Amfi platform could take a while to be ready.
The move comes at a time when the market regulator has terminated the system of entry load and put curbs on the levy of exit load on mutual funds.
At present, investors have to approach fund houses to buy or redeem units. On their part, fund houses declare net assets value on a daily basis and trading takes place on the basis of the previous day's NAVs.
Under the new mechanism, fund houses have to offer two-way quotes based on the previous day's NAV for trading.
Last year, Sebi had mandated the listing of all new fixed maturity plans on the stock exchanges, which had lowered listing fees to push through the move. At present, 83 FMP schemes are listed on stock exchanges but volumes are low.
Apart from the sale and purchase of units, new fund offerings could also be made through the stock exchange channel in addition to those through distributors.
A Sebi official said that stock exchanges would have to make minor modifications to their software to allow for trading through terminals. The move would also require dematerialising mutual fund units.
On the trading platform being developed by Amfi, a committee headed by UTI Asset Management Company chief market officer Jaideep Bhattacharya had suggested the introduction of a unique identification number for each investor that would help them track their portfolio, including their value, once they log on to a website.
"Sebi's initiative should work well for the industry," said the CEO of one of the largest asset management companies in the country. He said cost advantages would accrue for investors and fund houses and brokers would also benefit. "The commission may be low for financial advisors but it will be good for brokers who will also be able to make more use of their terminals," the CEO added.
Asit C Mehta Investment Intermediaries Managing Director Deena Mehta said, "Fund houses can sell new schemes and even units of the schemes floated earlier. Distributors can act as sub-brokers. This will cut costs for fund houses also."
There were over 500,000 trading terminals across 600 Indian towns and cities and Mehta pointed out mutual funds had a presence in 150 of these locations.
She added that trading through the stock exchanges would also mean that the settlement process could take place through the clearing houses of these exchanges.
