The Securities and Exchange Board of India (SEBI) vide its circular SEBI/IMD/Cir No. 11/183204/2009, dated Nov 13, 2009, has allowed the registered stock brokers of recognised stock exchanges to function as the official point of acceptance for mutual funds. This effectively utilises the existing infrastructure with a reach of over 1,500 towns and cities and 200,000 stock exchange terminals. Thus, SEBI has taken another step to widen the reach of mutual funds and extend the ease and convenience of secondary market transactions to mutual fund investors.

Though the SEBI circular is silent on the fee that can be charged by the brokers, it is widely expected that it will be in the range of 0.25% - 0.50%, similar to that for shares.

The brokers providing this facility will have to be AMFI certified.

As far as trade confirmations are concerned, investors will receive a time stamped trade confirmation slip from the broker.

Disputes between the brokers and their clients, if any, will be handled by the stock exchanges through the investor grievance mechanism which will be put in place for the purpose.

Units of mutual funds bought through this platform will compulsorily be in dematerialised form. This means all the investors opting for this mechanism will have to have a demat account.

The circular further states that mutual fund investors can convert their existing physical units (represented by statement of account) into dematerialised form. The mutual funds/AMCs along with Registrar and Transfer Agents (RTAs), Depositories and Depository Participants (DPs) have been directed to facilitate the same.

At present, mutual fund investors have to comply with the Know Your Client (KYC) norms specified by SEBI. The circular states that investors holding units in dematerialised form will be deemed to be KYC compliant if they have complied with the KYC norms followed by the DPs.

It should be noted that investors who do not aspire to transact in mutual funds through this system can still hold units in the physical form and transact as they have been doing till date.
 

Benefits for mutual fund investors:

1. One stop shop - Investors will be able to buy shares and units of mutual funds through a common broker.
2. Ease and convenience - Investors can do away with the need to fill lengthy application forms. All they might have to do is to call their broker and place the order to buy and sell. Also they can buy and sell the units at their convenience during the trading hours without having to hand over the forms much in advance under the offline investment mechanism.
3. Reduced paper trail - Under this method of transaction, units will compulsorily be held in dematerialised form thereby doing away with the need for statement of accounts. Currently mutual fund investors have to preserve a separate statement of account for each scheme they have invested in. Under the new method, a single demat holding statement will have the details of all shares and mutual funds schemes held by the investor.

 

We at Personal FN appreciate SEBI's initiative, but there are questions which SEBI and other related authorities need to answer. Here are few of them; we are also sure that there will be several more as this initiative is operationalised.

   

At Personal FN, it is our constant endeavour to keep you posted on the developments in the world of investments. As and when we get answers to the above questions and further information on this new initiative of SEBI, we will keep you updated.

Until then happy investing!

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