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R. Yegya Narayanan

Coimbatore, Nov. 29

Come Monday, mutual fund units would be traded on the NSE. But unlike some of the close-ended schemes already being traded on the exchange, the new units would not be available at a discount to the NAV.

The unit price will be based on the day's NAV.

Moreover, trading in mutual fund units would come at a price to investors, who would have to pay the brokers' fees levied for trading through terminals and also fees that the exchange or NSDL may levy. Such charges mitigate the advantage of abolition of entry-load.

Speaking to Business Line, Mr K. Annamalai, Managing Director, Annamalai Capital Services (Pvt) Ltd, Coimbatore, said trading in mutual fund units through the NSE would be something like investing in an IPO as investors would be able to place a binding order only to buy or sell. Unlike in share trading, there would be no squaring-off before the close of trading hours.

He said the unit purchase or sale would be determined by the NAV of the day concerned. The capital adequacy of the brokers would not be impacted.

Mr Annamalai said the fee for intermediary would depend on the volume of transaction and on market dynamics.

SEBI's decision to allow trading of MF units through the exchanges would give mutual fund intermediaries the opportunity to make good the loss of entry load on investments, he said. But only members of stock exchanges distributing mutual funds stand to gain.

Mr K. Sundaram, Financial Advisor, Arkay Stocks, Chennai, said the pay-in will be done on T+1-day mode. When the brokers get cheques from clients that were not of the same bank, there would be an element of funding for one day.

“It may put pressure on high value transactions if my client does not give payment through RTGS or NEFT. In the present mode the cheques go directly to AMC from my client. If the cheques are routed through the broker's account, there will be issues. We will get a better picture in the days ahead.”

The trading announcement has “come a little sooner than expected”, said Mr Sundaram, and “we are not prepared yet” as some formalities are to be sorted out. He said many of his clients will be interested in making use of the new platform.

No speculative trading

When pointed out that in stock trading investors react to price movements instantly but this advantage will be absent in MF units' trading, he said: “The concept of investing in mutual fund is going to remain the same. Investors are not going to trade in MF units the way they do in stocks.

“There is going to be no trading. Only submission of application forms online (the way the IPO forms are being submitted).”

On the rush shown by the NSE to create a mutual fund trading platform when the Association of Mutual Funds in India (AMFI) has planned to introduce a platform for trading in MF units by March, he said: “The platform by NSE is being started to make use of the distribution network – the presence of terminals in many towns and cities – and the backup of the clearing and settlement mechanism of the NSE. The AMFI has failed to provide a single platform for all the brokers to trade from any location. That is why NSE is entering into their territory.”

On the issue of fee, he said: “It may be around the levels being charged for delivery-based transactions in equity segment – it could hover around 0.5 per cent to 1 per cent, depending on client and volume.”

Mr Annamalai said sharebrokers may tie-up with mutual funds that have investor service centres or points of acceptance in their cities to divert to them work relating to buy and sell orders.

He said he is toying with the idea of opening exclusive mutual fund terminals so that share trading is not affected. The auto pay-in system may be introduced for mutual funds also. Mr Annamalai added that he expected the BSE to also allow mutual funds' transactions.

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