The highlight of the tie-up is that investors will also be able to redeem their units through SHCIL centres. Currently, barring Citibank, distributors only sell mutual fund schemes while for redemption of units, the investor has to approach the mutual fund.

``Our aim is to service the client at the earliest and we are putting systems in place to provide on-line information and maintain a database. We will gradually extend this facility to other centres,'' said Anil Sahgal, vice president, Dundee Mutual Fund. ``The tieup is part of Dundee's long-term goal to increase its distribution network across India and provide high quality services to investors,'' he added.

Dundee currently manages a liquidity fund and a gilt fund while the IPO of its bond fund is currently open for subscription. The fund is also planning an array of new schemes including a balanced fund, an institutional fund and a gold fund. Dundee Mutual Fund is contemplating providing cheque writing facility with its gilt fund. The Rs 100-crore SHCIL is the largest depository participant with NSDL and CDSL with a client base of 2.75 lakh.

Distribution and sale of schemes has been a major stumbling block for mutual funds, especially the private sector players. While funds have offices and service centres in key cities, they are yet to fan out to smaller cities and towns. ``Spreading across the length and breadth of the country is an extremely high cost and time consuming business. This why funds are outsourcing the sales business to banks and now to institutions like SHCIL,'' says an industry observer. ``At a time when competition is forcing funds to squeeze on costs in order to generate higher returns, no mutual fund can afford to set up a large number of distribution channels. These kind of tieups will dominate mutual fund selling in the near future and facility to redeem units will provide an added advantage,'' added another analyst.

However, most of the distribution channels for mutual funds are typical brokers who still sell funds with half-baked knowledge about the industry and on the basis of incentives and margins. ``This is another problem that we encounter though concerted efforts are being made to educate this section about mutual funds,'' says an official of a mutual fund. ``All the banks currently selling mutual funds are private sector players, operating only in major cities. This again hampers distribution of mutual fund products. On the other hand, public sector banks are not open to the idea of sale of mutual funds,'' he adds.