Mumbai: Investors will soon be able to buy and sell mutual fund (MF) units on stock exchanges.

India’s capital market regulator on Friday announced this game changer for the Rs7.62 trillion MF industry, three months after it abolished upfront commissions that were being paid to MF distributors.

A file photo of traders at a Mumbai brokerage. In order to sell MF units through exchanges, stock brokers will need to pass a certification course offered by industry lobby Association of Mutual Funds in India. Punit Paranjpe / Reuters

Currently, investors buy MFs either from a distributor or from asset management companies (AMCs).

A few online portals, too, sell these units. The exchange platform will be a critical new channel for the industry, say asset managers.

A.Balasubramanian, chief executive officer (CEO) of Birla Sun Life Asset Management Co. Ltd that manages Rs65,053 crore, said the move will help both the AMCs as well as the investors.

“It will be a cost-efficient channel for both. It will not take much time to implement as we will leverage the existing technological platform and nationwide network established by the exchanges," he said.

In order to be able to sell MF units through exchanges, stock brokers will need to pass a certification course offered by industry lobby, Association of Mutual Funds in India, Sebi said.

The move comes as a breather to AMCs, hit hard by the market regulator’s move to ban upfront commissions charged by asset managers from 1 August.

The industry has been seeing more redemptions than sales since August. In a recent interview with Mint,U.K. Sinha, chairman and managing director of UTI Asset Management Co. Ltd, said: “No industry can survive with this kind of negative sales."

“Mutual funds will have a wider geographic reach through exchanges as equity brokers will become eligible to sell fund units like shares. At present, 70-80% sales of mutual funds come from 10 cities, but with this move, funds will be able reach across the country where the two depositories record share sales," said Dhirendra Kumar, CEO of New Delhi-based MF tracker Value Research.

He, however, does not see any immediate rise in assets of MFs even though this will simplify the procedures of investments in such instruments.

According to Piyush Surana, CEO of Shinsei Asset Management (India) Pvt. Ltd, the exchanges cannot replace the sales function (of distributors) and it is only an additional procedural facilitation. “The move makes mutual funds more accessible to investors, but someone has to sell the fund and someone has to buy. Essentially, one needs to convince the investors (to buy and sell)," he said.

Ashutosh Wakare of Money BEE Institute, a training institute for MF distributors, said it requires a transformation of mindset of investors as “you are bringing a passive investor into an active platform".

“The idea is to facilitate the buying of mutual fund units through an avenue which has a greater reach. But, I don’t see any distinct advantage of this move, because mutual funds will still be required to be sold through the conventional concept selling methods," said Hemant Rastogi, CEO of Wise Invest Advisors Ltd, an MF advisory firm.

It is not known when the exchanges will start trading of MF units.

A few online portals that help investors buy and sell MF units say the exchanges are in talks with them. Maju A. Nair, associate vice-president (MF- product manager), Sharekhan Ltd, said the National Stock Exchange (NSE) has already made a presentation of its proposed platform to the brokerage. He is meeting the Bombay Stock Exchange (BSE) soon. “It will make life easier for the online portals as the depositories will take care of the back-office—interactions with registrars," he said.

Derivatives expiry

Sebi on Friday also allowed the stock exchanges to set the expiry day for equity derivative contracts. At present, the expiry day for equity derivatives is the last Thursday of every month on both the stock exchanges—NSE and BSE.

Mint on Thursday reported BSE has received an approval from Sebi to set the expiry day of its monthly stock future contracts to the second Thursday of every month.