‘There’s a lot of inertia about transacting online’

In January, the Association of Mutual Funds of India (Amfi) launched the MF Utility (MFU), a sort of one-stop shop that allows investors and distributors in the MF industry to navigate the space better. Currently, a mutual fund investor has to operate separate accounts at each fund house where he has invested — commonly called the folio number.

The MFU combines all these separate investor identities in a unified common account number (CAN). Removing all the extra paperwork makes life easier not only for investors, says V Ramesh, MD and CEO of MF Utilities, but also helps the industry indirectly by encouraging more interest in mutual funds. Edited excerpts:

What are the inconveniences in the MF industry that led to the creation of the MFU?

To start with, in the current system, a customer has to create multiple folios and fill in multiple forms. If I have ₹5 lakh and want to invest it in one fund house, I have to fill up one form. But if I want to invest in five schemes from five different fund houses, I have to fill up five forms, all requiring the exact same information. This is a needless duplication of effort. Then, allocating investment to different fund houses is difficult as five cheques need to be issued for multiple folios. If an investor wants to change his bank details, he must intimate each AMC separately. CAN holds all this information in a single place.

How is MF Utilities structured? Some AMCs haven’t signed on yet…

We have made it mandatory for AMCs to be shareholders. It’s a cooperative model. The shareholder theme has become a problem for all foreign agencies because it is an investment into shares of a company, so it will take them time to get their internal clearances done. (We are waiting for this to happen) but we don’t want to dilute our model of equal ownership. This is the spirit in which we are launching the MFU.

How does this compare with NSDL’s plans for a single demat account for all?

SEBI has already said any investor who wants to hold units in depository accounts should be allowed to do so. An investor can hold a unit through an RTA (registrar and transfer agent) or a depository. But inconvenience with depositories is that all accounts must be maintained through brokers. But if investors prefer this, or trading units on stock exchanges, that will continue as always.

Does the MFU compete with these platforms?

First, the MFU is not a platform, it’s a system. Platforms provide you with information to make investment choices. We’re only a system that aggregates data. We are not in competition with any platform. We are one level above these platforms.

How will the MFU sustain itself?

Our shareholders reimburse our costs, since we don’t have a revenue stream. For the industry, the MFU amounts to cost budgeting. In terms of ownership, all AMCs are equal, with equal voting rights. In terms of sharing costs, those AMCs with more transactions bear a higher percentage of our costs.

What are the payment systems available on the MFU now?

For distributors, all forms of online payments are allowed except credit cards. Online payments for investors will be enabled in the second phase. Till then, they will have to issue cheques.

How many CANs have been created? Why is the conversion taking time?

We have signed on 25 AMCs, which covers 92 per cent of the industry’s assets and 95 per cent of its transaction. Close to 800 CANs have been created till now. But the conversion is taking time because people haven’t understood the system yet. MFU is just a transaction acceptance system. You can purchase a unit through it, or enter a redemption order. The RTA will continue to buy or redeem the unit the same way it does today.

Will the creation of CAN encourage direct investing by investors and eventually push distributors out of the system?

I don’t think MFU will really impact direct investing that much. At the end of the day, whoever transacts needs to know where to invest (and distributors help here). Maybe after ten years, there might be an increase. But I don’t see a rush into direct investing happening immediately.

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