Mutual Fund investors allowed to invest in Direct Plans on stock exchanges – How will it benefit

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Updated: February 27, 2020 4:46:47 PM

Whether you are about to invest in the Direct Plan or a Regular Plan of a mutual fund scheme, make it an informed buying decision.

StAR MF platform, NMF II, SEBI, mutual fund investors, Direct Plan, Regular Plan, stock exchange platform,In order to further increase the reach of the stock exchange platform, SEBI has now decided to allow MF investors to directly access the recognised stock exchanges.

For mutual fund investors, it could be a big investor-friendly move by the regulator. SEBI has allowed investors to invest in mutual funds through stock exchanges directly from the fund houses. Till now, only the mutual fund distributors had access to the stock exchanges to purchase and redeem MF units on behalf of investors. Going forward, an MF investor can invest and redeem units of Direct Plans from a stock exchange platform without going through an intermediary.

In a circular issued on February 26th, the Securities and Exchange Board of India (Sebi) states – “It has been decided to allow investors to directly access infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund/ Asset Management Companies.”

Every mutual fund scheme has two options – Direct Plan and Regular Plan. In the Direct Plan, the expense ratio is lower than that in the Regular Plan. In the latter option, the higher expense ratio is owing to the distributor’s commission. To save on the cost by investing in Direct Plans, one has to directly invest through a mutual fund website or through any other platform offering them. After the recent move of SEBI, investors will also be able to buy Direct Plans through the stock exchanges.

“SEBI’s move to allow investors to invest in MFs through direct access to stock exchange platform shall definitely help DIY investors, who look forward to manage their own portfolio. However, one should not treat MFs like shares as the underlying securities are managed with certain fundamentals. I continue to believe distributors have a pivotal role to play in creating investor awareness about Mutual funds and handholding them throughout their investment journey. Though, this move may increase direct plan penetration and the implications of expenses on direct plans,” says Suren Kochhar (Head of Sales and Marketing at YES Asset Management)

Earlier in 2013, SEBI had permitted mutual fund distributors to use recognised stock exchanges infrastructure to purchase and redeem mutual fund units directly from Mutual Fund / Asset Management Companies.

BSE had launched STAR MF platform for IFAs (MFD Model) on March 6, 2014. Similarly, NSE has an online platform NMF II. This is an online platform which facilitates subscription, redemption, Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP), Switch and other transactions of mutual fund units.

Subsequently, in 2016, the SEBI Registered Investment Advisors (RIAs) were allowed to use the infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund / Asset Management Companies.

In order to further increase the reach of the stock exchange platform, SEBI has now decided to allow MF investors to directly access the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund or Asset Management Companies.

Investing in a Direct Plan helps in saving on cost, especially over the long term. However, whether you are about to invest in a Direct Plan or a Regular Plan, make it an informed buying decision.

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