Has asked all AMCs through a notification to facilitate client holdings of MF investments in open-ended schemes in demat form by October, 2011
Investors will soon have the option of holding their investment in demat form from October 2011 in an open ended scheme. According to a SEBI circular dated May 19, 2011, AMCs have been asked to provide for investors to receive allotment of mutual fund units in their demat account while subscribing to any scheme, even open-ended schemes. Moreover, AMCs have been asked to provide an option to the investors to mention demat account details in the subscription form, in case they desire to hold units in demat form. Earlier, this option was available only in close ended schemes.
IFAs feel that investors will incur extra costs for holding investments in demat form. “Firstly, if an investor holds the unit in demat form, it will only increase his cost. Secondly, it will create a lot of confusion for the distributor to track a client’s portfolio. For instance, if a client holds a FMP in demat form; it shows as an exit from a distributor’s portfolio. CAMS or Karvy have to fill in the loopholes for the process to function smoothly,” said Dinesh Khemlani of Comsol Financial Solutions Pvt Ltd.
Currently the complete process of investing in mutual fund only involves three entities - the investor, the advisor and the fund house. But after the client holds the investment in demat form, it will involve a number of people - the bank (demat provider), clearing house, another bank (fund clearance), NSDL, the stock exchange. The total charges would add up to 32- 34 paisa excluding the advisory fee, say IFAs.
“I am against holding investment in demat form because mutual funds are long term investment products. It is not a trading instrument unless they are ETFs. We are trying to reduce cost by providing investors with statements in physical form while SEBI is increasing the cost. Investors have to shed off extra amount as annual maintenance charges for the demat accounts,” said Sadashiv Arvind Phene, an IFA.
SEBI has asked the depository participant as well as the AMCs to obtain the ISIN quote and mention it along with the name of the scheme in all CAS issued to the investors from October. Investor’s request for dematerializing of their units would be rejected if the ISIN quote is not mentioned.
