According to market sources, MFs which will be trading ouside the NDS ring will have to deal with counterparties in the traditional way over the telephone. This will not enable them to get the best possible prices as they will not be able to trade in a transparent manner unlike debt players who would be trading on the NDS. The process of efficient price discovery would be lost to these players in the traditional system and they would be subjected to off-market prices. As a result, the net asset values (NAV) of the debt schemes of these MFs could take a hit.
All active players in the debt market generating about 90 per cent of the volumes have become members of the NDS. Hence, the market will become polarised with NDS members desisting trades with non-NDS members, says RBI director (internal debt management cell) AP Gaur.
According to Mr Gaur: Since the RBI has stated that it would not accept physical transfer of SGL forms, it is implicit that non-NDS members would not be able to trade in government securities till they become members. This is a way of putting pressure on the debt market players to become NDS members.
However, the Association of Mutual Funds of India (Amfi) chairman AP Kurien says that non-NDS members will be able to trade provided they go through the primary dealer (PD) route by paying a fee to them.
That only implies that there will be an additional burden on these funds as their acquisition cost will be higher which will adversely reflect on the NAVs of their debt schemes if the fee to the PD is charged to the scheme.
There are some MFs who apparently are not interested in becoming an NDS member at all like Dundee MF and Escorts MF. Reliable sources say that there are still others who have not applied for NDS membership like Taurus MF, PNB MF, GIC MF and ING Savings Trust MF though this could not be clarified from the respective fund houses. The main reason behind those MFs who have not applied for an NDS membership is the cost associated with it, says Mr Kurien of Amfi. Volumes of these MFs are not significant enough to justify the cost that will have to be incurred, particularly, in the installation of the hardware and software necessary for operating on the NDS system. Software installation takes around Rs 30 lakh. Then there is a nominal fee of Rs 1 lakh to become an NDS member apart from another Rs 5 lakh for availing the membership of the Clearing Corporation of India.