Last Friday witnessed the next step in the mutual fund (MF) demat story when the capital market regulator allowed dematerialized (demat) mutual fund units to be freely transferable. The story began 10 months ago with the Securities and Exchange Board of India (Sebi) allowing MF units to be listed and traded on stock exchanges in demat form. The aim was to improve the reach of a retail product through the use of well-networked stock exchanges.
The results have, so far, not been encouraging, with less than 0.01% of the total inflows in the Rs 6.87 trillion MF industry coming from the two stock exchanges. MFs continue to be bought and sold through the banking, large national distribution company and independent financial adviser channels. And here’s the rub: MF units are in effect demat since there is no physical certificate of a fund unit that comes to the investor from the fund house. Investors get an account statement from the fund house, by mail or courier. The problem is in the aggregation of tens of account statements coming from different fund houses and the operational mess thereby.
What Sebi has been grappling with is the access and transaction ease questions in the MF space for over a year. The latest move aims to encourage investors to transact in stocks and funds through one window, allowing for consolidation of portfolios and operational ease for the do-it-yourself investor.
Apart from the plethora of options, one of the things that characterize an efficient investment market is the ease with which you get to invest in them and monitor them. To a large extent, transparency helps. To that end, Sebi’s move to encourage investors to get their equity and MF holding details in a single statement is an honest intention.
However, the move to get stockbrokers to buy and sell funds for investors ignores the behaviour of these entities that thrive on churn. On the ground, they are clearly unwilling to service the typical retail buy-and-hold MF investor. If access and transaction ease is the intent, then possibly a parallel system that uses established entities in the market, such as registrar and transfer agents and online portals and facilitating the large aggregators may prove more useful than this. It will also deal with the needless allegations of trying to push business towards a particular entity.
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