The Securities and Exchange Board of India’s (Sebi)’s latest proposal to ease norms for mutual fund (MF) holdings in demat form, if implemented, could lead to more demat holdings and also a gradual rise in volumes, experts said.
For MF houses, the implementation of the proposal is expected to help in improving “convenience and may eventually increase volumes,” Prasanna Pathak, deputy chief executive officer at The Wealth Company Mutual Fund, said. He added that asset management companies and registrars could face fewer ad-hoc manual instruction updates as standing instructions will be executed automatically.
When it comes to investors, the move can make operations convenient, facilitating direct instructions within depository frameworks, Nikita Sony, investment manager at ICICI Prudential Asset Management Company, said. The absence of annual maintenance charges and ease of direct investments are some of the reasons why investors prefer the Statement of Account (SoA) format over demat, she added.
Bridging the Convenience Gap
In India, MF units are held primarily in two formats – demat and SoA. Demat account is an electronic repository for holding various securities stored with a depository, while SoA is held directly by a fund house. Last week, Sebi proposed allowing standing instructions for Systematic Withdrawal Plan (SWP) and Systematic Transfer Plan (STP) for MFs held in demat form. Currently, demat investors need to submit instructions for all transactions of SWP and STP, making the process inconvenient and time-consuming.
Standardizing the Ecosystem
The move can also help in maintaining parity between demat and SoA formats, experts said. “…most of the SoA investors would move to demat, thereby promoting dematerialisation,” Supreme Waskar, managing partner at Supreme Law Partners, said. Waskar said he does not see any downside in the proposal if the regulator is able to manage operational risks.