Trading Mutual Funds on Stock Exchanges – What the Investor needs to Know

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Trading Mutual Funds on Stock Exchanges – What the Investor needs to Know

SEBI has recently allowed allowed registered stockbrokers to transact mutual fund units on behalf of their clients through the stock exchange mechanism. When the systems are in place there are a few points the investor has to consider while investing in mutual funds through Stock Exchanges (NSE and BSE)

Existing mutual fund investors who intend to buy more units will also benefit as this system will allow them to keep track of all investments under a single statement.

– The SEBI circular on Friday also said that investors can hold units of mutual fund schemes in dematerialised form, and that the demat statement given by the depository participants would be deemed adequate compliance with SEBI norms. Buying and selling will become more efficient and transparent , particularly if investors choose to transact through a demat account.

– Though cost seems to be a factor for those who do not have a demat account, the impact will be minimal for those who already are demat account holders.

– End-users can use the convenience of their neighbouring broker’s office for their mutual fund transactions. However, once the broker starts acting as a distributor, there is an issue about what commission he might ask for and whether the client would be ready to pay that or not.

– In terms of convenience, the advantages are similar to investing online through the AMC’s website — reducing the clutter of paperwork and speedy execution.

Investing in SIPs (systematic investment plans) – A reading of the SEBI circular on entry loads suggests that the entry load will continue to apply on instalments of SIPs registered before August 2009. As long as this loophole remains unplugged, existing SIPs will be at a disadvantage to the ones registered after August 1. The only way out is to stop the existing SIPs and start afresh in the same scheme.For those with SIPs, the only way to benefit from the entry load waiver is to stop them and start new ones in the same scheme.

Switching from one scheme to another within the same fund house – As per the new guidelines, no entry load will be charged for purchases, additional purchases and switch-in accepted by any fund house with effect from August 1, 2009.Similarly, no entry load will be charged with respect to applications for registration under systematic transfer plans.

Source : ET and Hindu Businessline

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