Distributors are looking forward to MF Utility platform.
After the entry loads were abolished, SEBI nudged stock exchanges to create a mutual fund platform with a hope that the distributors would find it a cost effective and convenient way to carry out mutual fund transactions. Hence, BSE launched its StAR MF Platform in 2009. NSE too launched its NSE Mutual Fund Service System (MFSS) around the same time. The volumes on both NSE and BSE platforms indicate that intermediaries have not taken to these platforms in a big way.
So, what have been the impediments to the growth of these platforms? Firstly, the onerous norms and high application fee to become a stock exchange member has kept away distributors from these platforms.
Moreover, buying mutual funds through exchange platform requires a demat account. Not many mutual fund investors have a demat account. In fact, it is because many investors do not have a demat account that many fund houses have launched gold fund of funds which do not require demat accounts, to channelize investments in Gold ETFs.
Since MF distributors would largely wish to transact only in the mutual fund segment on exchanges, they feel the membership fee and other criteria like net worth should be less stringent than that of full-fledged exchange license. Stock exchanges are waiting for SEBI’s direction on the ways and means to enroll IFAs.
The MF industry has nearly 50,000 KYD compliant distributors. The questions that are foremost on the minds of distributors are: Can stock exchanges woo all these distributors to take up membership? Will there be certain criteria which would allow only distributors who have a certain size and scale to take up SE membership?
Also, distributors say that if they allow their clients to transact online, it could inculcate short-term selling practice among investors. Investors could redeem to book profits at every market rise. On the other hand, platforms could bring immense transactional ease to investors and distributors by cutting down on time and costs.
AMFI is in the process of developing an online investing portal called MF Utility which would allow distributors and investors to invest across all AMCs. This platform would see the light of the day by next year. So, should distributors wait to see what MF Utility has to offer them before they take up SE membership? Most distributors think so.
What works in favour of MF Utility is that it is not likely to charge anything from distributors as it is funded by AMCs. On the other hand, distributor’s clients will have to bear various costs associated with transacting online such as annual maintenance charges of depository, transaction cost on buying and selling units, etc.
Advisers not keen to take up SE membership
Mukesh Dedhia of Ghalla Bhansali Securities does not foresee distributors taking up SE membership in a big way. “We will wait for MF Utility platform to come up, which we think could allow us to transact free of cost. Today not many clients pay a fee to their advisers. There are costs associated with dealing online which clients will have to bear. The exchanges could relax the minimum net worth criteria and registration fee for distributors. I don’t see it as a game changer given the fact that there are no great advantages of taking up SE membership. There is a merit in holding shares in dematerialized form but holding mutual fund units in demat does not have any advantage.”
Jayant Vidwans, President, Society of Financial Planners (SOFP) seconds this opinion.“I don’t think distributors would be interested in joining the exchange. There should be clarity on who will get the trail commission – whether IFA or the depository,” said Jayant.
