MUMBAI, July 16: The benefit for a mutual fund to hold shares in demat form could be as much as a 30-35 per cent reduction in cost in terms of custody charge alone. Tata Mutual Fund, which had paid Rs 70 lakh last year for one of its schemes as custody charge (the charge levied by a custodian for holding shares), has realised that this year, it might end up paying just about Rs 45-50 lakh a straight cut of 30-35 per cent in cost.Tata Asset Management Company has been one of the more progressive mutual funds which had realised the merits of trading in a demat environment ahead of its competitors and is now reaping the benefits of this move and in the bargain save unit holders' money.
The saving for Tata Mutual Fund also destroys the myth that the benefit of demat shares is only if one wants to trade. The Unit Trust of India till recently believed that it should dematerialise only that much of its holdings as it feels it could end up trading in.
According to Tata AMC managing director, K N Atmaramani,significant benefits have come the mutual fund's way thanks to dematerialisation.This benefit has come in mainly in the form of reduced custody charge as well cost of transaction which are much higher in the physical form.``The cost of transaction has reduced by nearly 25 to 30 per cent or one-third of what it was earlier,'' said Atmaramani.
Atmaramani said that in one of its scheme, Tata Equity Growth Fund which is an open-ended pure equity scheme, the AMC had last year paid custodial charges of Rs 70 lakh and the custodial charges that they may have to pay this year is around Rs 45-50. This amounts to a reduction in cost of 30 to 35 per cent.
Tata Equity Growth Fund currently has a corpus of Rs 68.73 crore with an net asset value of Rs 9.84 as on July 4.
Another benefit that the AMC is talking about is the reduction in the cost of monitoring and bad deliveries. ``In the physical segment, the objection cases such as share transfer and bad deliveries are high which lead to a significant cost to the AMC.The bad deliveries and monitoring cost in the case of demat shares comes down to zero and there is no danger of the same,'' said Atmaramani.
The benefit of dealing in the demat segment is more for pure equity funds than for balanced or pure debt funds.
``Another benefit to funds comes in terms of opportunity cost. In the demat segment, the funds do not have to wait for weeks or months for delivery and they can exercise the opportunity to buy or sell as when it arises. While in the case of shares in the physical segment, funds have to wait for weeks or months before another transaction can occur,'' added Atmaramani.
``Therefore, the opportunity for booking profits as and when the markets allow, is higher leading to increased capital for funds,'' he added.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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