Ravi Samalad meets V.Balasubramaniam, Chief Business Officer, BSE to find out what BSE StAR Platform has to offer to mutual fund distributors
BSE STAR MF platform bagged CNBC Nasscom IT Users Award and SKOCH Excellence Award. Tell us more about the technology behind StAR MF.
These awards were given in recognition of BSE’s technical excellence as also the immense reach and social objective embedded in the creation of the StAR MF software. While traditionally the stock exchanges have been expanding their reach through leased lines, WAN, V-Sat etc. looking at the need for reaching out to the smallest investor in the remotest corner of India, BSE thought of a radical approach by going the web route. Consequently, the entire platform was conceived around the web and the platform is internet based. In keeping with its important role of being a key financial infrastructure intermediary of the country, it was decided that this user friendly, highly customizable and efficient platform would be given free of charge to all eligible brokers of BSE.
The StAR MF platform’s architecture provides scalable operation and flexible deployment options while ensuring data integrity for improved performance. The system uses ASP.NET as browser based front-end and relational database management system (RDBMS) as the back end database.
How do you plan to woo IFAs and other large distributors towards your platform? What are the benefits for distributors if they come to your platform?
We would encourage distributors to join up as sub-brokers with existing brokers of StAR MF as this broker /sub-broker model has worked very successfully in the equity market for many years without any poaching of clients. Alternatively, we have slashed the BSE membership fees from Rs. 1 crore to just Rs. 10 lakh to expand our membership base and distributors who have the wherewithal and capacity can use this route effectively to get this prestigious membership of Asia’s oldest stock exchange. The response has been excellent and a lot of brokers are already showing interest.
As regards benefits, IFAs can offer all products under one roof when they become our members. The terminal will cut down their costs and hassles to a large extent. Since AMCs and RTAs do not have to send statements of Account, it is also eco friendly! Here investors will be able to see all their holding in a consolidated format. Dematerialization brings in a lot of convenience and safety of holdings. IFA’s clients can transact even through a phone call.
There is some resistance but financial advisors will surely realize the advantages. Initially there was a similar resistance from companies when dematerialization of shares was made mandatory by SEBI. But all of them fell in line. It is difficult and tedious to handle physical documents.
Distributors have certain reservations about stock exchange platforms?
There are certain fears/misconceptions that we would like to address. IFAs feel that their identity will be lost if they get empanelled with brokers and also fear that they will lose their clients to brokers. We have not received any complaints from any sub broker regarding client poaching till date. It appears to be an irrational fear. We may add here that brokers are well regulated by SEBI and exchanges and are some of the most compliant, disciplined and responsible intermediaries in capital market.
It’s been two years since BSE StAR Platform was launched and the volumes have not picked up much. Has it something to do with brokers disinterest in selling mutual funds?
The volumes have picked up this year. Our volumes are in fact higher than our competitor. The total volumes since the launch till 23 November 11 stands at Rs. 1110 crore with total orders of 1, 21,267. The average volume per day is Rs. Rs. 2.28 crore. We receive an average of over 250 orders per day. There has to be a mindset change to bring brokers on the same page. We are conducting a lot of awareness campaigns and we will surely see interest growing in future.
How many BSE brokers are selling MFs through the platform? Do brokers see this as an additional revenue source?
Over 190 brokers are selling mutual funds through our platform. It is absolutely free for brokers as the exchange is bearing all the costs. If they get active in mutual funds then it’s surely an additional revenue source for them and they can serve as a one stop investment shop for their customers. The important thing is it ensures stickiness of client who will not have to go elsewhere for any investment.
You introduced SIPs on your platform last year. How has been the response to it?
SIP facility was made available from December 2010. In the 12 month period till date, we have registered over 7400 SIPs.
Brokers earn their commission through buying and selling of securities while mutual fund products are long term in nature. How do you plan to imbibe long term philosophy among the broker community?
Investors will ultimately look for returns. If brokers churn mutual fund portfolios and the returns are dismal then these investors would not even buy equities from that broker. Brokers understand the nature of mutual funds. Exchange platforms bring in transactional ease and they may not necessarily result in churning of portfolios. To give a better perspective, the only earning for brokers (who largely do not charge brokerage) is trail. If they start churning investments then they will be the sufferers as they may not even get trail!
What percentage of inflows on BSE StAR MF is from retail, institutional and FIIs?
A majority of the transactions are from retail investors on our platform.
How many schemes are available on BSE Star MF?
More than 2,000 schemes of 29 AMCS are available on our platform which covers over 90% of the AUM of the industry.
Since you are bearing all the cost for this platform what sources of revenue are looking to build in the long run?
We take our responsibility as a key financial infrastructure intermediary of this country, very seriously. We built this platform in the larger interest of investors and to grow this market by providing ease and access - not solely with a profit motive. It is completely complementary. Hard work and building of infrastructure (financial or physical) always has its rewards in the long run and as the popular ad goes, we are here for good! We see that a lot of schemes and AMCs will get listed in the future and the benefits of demat holding may become very evident. As of now there is no transaction fee for trading on our platform. Eventually we would like to introduce a fixed / transaction fee.
We are seeing increased inflows in gold ETFs but the inflows in equity ETFs are not encouraging.
That shows that investors are savvy and know where to park their money during uncertain economic conditions. ETF as an investment avenue is relatively new to India. The awareness has to increase. Gold ETFs are getting popular because of sentiment based buying.
What initiatives are in the offing?
We are soon coming out with an investor-centric website for Mutual Funds in collaboration with a globally respected independent research company - Morningstar Inc. that will provide internationally accepted tools like Instant X-ray, Fund Screener, Fund Quickrank, its proprietary Stylebox, etc. on the website. We would also be working on facilitating QFIs to invest through our platform, once the AMCs put in place their processes. We are waiting for the regulatory hurdles to get clear. Besides we will shortly allow mutual fund investors to buy and sell units through mobile phones. We will announce some additional features for the convenience of investors which will make our platform more attractive.