Investors allowed to buy and sell mutual funds via stock exchanges

The SEBI’s latest move would make investing in mutual funds operationally efficient for Do-It-Yourself investors

Kumar Shankar Roy Feb 27, 2020

Large cap mutual fundNow investors will be able to directly buy or sell mutual funds through a stock exchange without going through any brokers or advisors. The SEBI has directed stock exchanges, clearing corporations and depositories to set up the infrastructure required for this purpose. To be fair, investors already have a plethora of options to directly transact in mutual funds. These include directly going to the individual fund-house (asset management company) website, or by using fintech platforms like Paytm Money or Wealthzi.com or aggregation platforms like MF Utility or RTA platforms like the one provided by CAMS. Stock exchange platforms have become one more route to go direct.

Direct access

Market regulator SEBI had earlier allowed SEBI-registered Investment Advisors (RIAs) to use the infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund/Asset Management Companies (AMCs) on behalf of their clients (investors), including direct plans. “In order to further increase the reach of this platform, it has been decided to allow investors to directly access infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund/Asset Management Companies,” a SEBI circular said.

Many Do-It-Yourself (DIY) investors who bought direct MF plans earlier had to adopt the logistical challenge of going to each specific fund house’s website. So, this would mean maintaining separate login credentials and records. The SEBI’s latest move would probably make investing in mutual funds operationally much more efficient for such investors.

For DIY investors, who did not want to directly use the fund-house website route, the logical step was to do direct MF transactions through an intermediary platform. This intermediary platform would be an aggregation platform like MF Utility (MFU) or a fintech platform like Paytm Money, Zerodha Coin, Groww, Wealthzi and so on. CAMS, a registrar and transfer agent of the MF industry, also allowed investors to invest in MFs without the use of any intermediary, distributor or RIA. At present, existing stock exchange platforms like BSE STAR MF and NMF II (of NSE) also offer direct MF plans, but direct plans on the stock exchanges are available only to investors who would invest in mutual funds through SEBI-registered RIAs. This now changes, because investors can transact without any intermediary.

In effect, the SEBI’s latest move now allows investors to come to exchanges directly, just as they could go to the MFU or fund-house website entirely on their own.

Extended cut-off timings

Also, for some DIY investors, going directly to the stock exchange for direct MF plans can help them leverage the benefit of extended cut-off timings, compared to shorter cut-off timings if they transact in direct MF plans on aggregation platforms.

Suren Kochhar, Head of Sales and Marketing, YES Asset Management says: “SEBI’s move to allow investors to invest in MFs through direct access to stock exchange platform shall definitely help DIY investors, who look forward to manage their own portfolio. However, one should not treat MFs like shares as the underlying securities are managed with a certain fundamentals. I continue to believe distributors have a pivotal role to play in creating investor awareness about Mutual funds and handholding them throughout their investment journey. Though, this move may increase direct plan penetration and the implications of expenses on direct plans.”

Flipside to the coin

However, making stock exchanges provide a direct access platform for transacting in funds can have a flipside. Retail operations will involve costs related to KYC, back-office operations, customer care, and payment infrastructure. These will need to be recovered by exchanges by way of fees/charges by the AMCs or investors. If that happens, the cost of doing direct fund investments may rise. One thing, however, is sure that the SEBI’s latest move is sure to boost MF flows into direct plans.

How successful will the move to allow investors to directly access infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund/AMCs depends on the ease of transactions, service experience, and support.

But it’s not just the ease of transactions that investors need. Investors also need information on what funds to invest, when to exit a fund and portfolio allocation etc. This would mean just execution platform alone would not be beneficial for an investor.


Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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