It is best suited for retail investors, yet buying, selling and maintaining mutual funds in India remains a challenge.
In 2009, systems were put in place to make transactions smoother. The Securities and Exchange Board of India (Sebi) allowed stock exchanges to list funds. Overnight, the number of distributors went up to about 1,500, up from the current about 300.
Competition and a maturing market are providing the second leg of this change. While fund houses, banks, brokerages (first only online but now all) allow you to transact in funds, there are issues of choice and costs. A new trend that became visible in 2009, we predict, will gain ground in 2010. We are talking about the use of online comparison, transacting and maintaining portals that do not charge anything, yet offer a slew of services.
Transacting funds over the Internet is not new and can be done in several ways. One, most fund houses have been offering their own schemes online. But this is just half the solution for an investor who has a portfolio of several holdings. Getting a consolidated look at his net worth is a transaction nightmare along this road. Two, all brokerages, including online, also offer MFs in addition to equity shares. Three, banks, too, allow transaction in mutual funds on their own websites.
Investors run the risk of getting a filtered choice of schemes and of still paying transaction costs that may charge as much as 1.75% of their investment for just moving money from your saving account to the fund.
The new kids on the block are the independent online MF portals such as Fundsindia.com, Fundsupermart.co.in and the soon-to-be-launched Powermf.com. These work like online marketplaces for funds. These are do-it-yourself channels and are meant for those who are confident of taking their own investment decisions. Some charge you nothing for a choice of most funds and a facility to consolidate your MF investments at one place.
Cost, choice, convenience
Online markets such as Fundsindia.com and Fundsupermart.co.in are free and earn trail commissions, but others are not. For instance, Powermf.com charges Rs300-1,000 a year depending on the services you choose and a Rs200 fee to open an account. “People have to pay for services,” says Sridhar K., promoter of Powermf.com.
Most brokerages and banks press nominal charges. Icicidirect.com charges Rs100 for all lump sum investments, irrespective of the amount (for portfolio values of up to Rs8 lakh). HDFC Bank Ltd charges Rs100 every quarter, but has no upfront charges.
Next to cost is the choice parameter. Typically, banks offer a wide choice, though some such as Citibank are choosy. Online brokers and marketplaces have most funds. But it is best to check. For example, Fundsindia.com does not have MF schemes of DSP BlackRock Investment Managers Pvt. Ltd.
The next in line is convenience. While brokerages give you a consolidated holding statement across your equity and MF investments, online marketplaces give you a consolidated statement just for funds. What these sites do allow, however, is portfolio analysis in many interesting ways. For example, it could give your total investment in Infosys Technologies Ltd or, say, the pharmaceutical sector, across all your mutual fund holdings.
Further, as against bank portals that mandate you to have a bank account with the same bank, independent portals have tie-ups with several banks.
What to do: Opt for online marketplaces only if you can make your own choices.