Brokers: intermediary for the mutual funds

Font Size

Print

Feedback

Email

Discuss

• Discount UK Shopping

Related Articles

Debt-based MF’s quality improves: CrisilMFs see 8.6% rise in AUMsMFs investor base grow faster than AUM

: One of the things that I really enjoy doing is talking with investors. After having being associated with the financial industry for such a long time, I have often had conversations with people who belong to the industry. But I find it important to get a perspective from the other side as well, and hence, conversing with investors is something I look forward to.

During the past week, through numerous interactions with investors I realised that one of Securities & Exchange Board of India’s (Sebi’s) latest rulings has caused some amount of confusion amongst them. A few days back, Sebi passed an order that will allow stock brokers to sell mutual funds as well. While this will open up a new way for investors to buy funds, with stock brokers acting as fund distributors, it has left some of them confused between this new system and the trading of closed-end funds on exchanges.

Closed-end funds having been traded on stock exchanges for over a decade. Generally, units of such funds are available at a discount to the NAV. And this is what some investors expect to happen with other funds too under the new system. Many have asked me if stock brokers will now be selling all kinds of mutual funds at a discount. The answer to that is no. In fact, these two systems have absolutely nothing to do with one another.

What SEBI has tried to do with this new ruling is open an easier and more convenient way for investors to buy mutual fund units. Stock exchanges have a massive network – over two lakh terminals across 1,500 cities and town. Stock investors are almost always interacting with their brokers and Sebi wants to take advantage of this well-established set-up by allowing brokers to sell funds as well.

For the investors, this system has a number of advantages as well. They won’t have to do their Know Your Customer (KYC) identity verification separately for different transactions. Once it’s done for a depository account, it needn’t be done for fund investments. Other than that, investors will be able to hold their units in dematerialized form, and avail a single unified statement of their stock and fund holdings combined.