Investing in mutual funds will soon be a different ball game. For, you may

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be able to track mutual fund schemes on the television ticker like any publicly-traded stock or buy a new fund offer while holidaying in a remote place! 2009 was a watershed year for the mutual fund industry. The year began with a nightmare, that of heavy redemption triggering a liquidity crisis, leading to the Reserve Bank of India creating a special facility to keep distressed fund houses afloat. In June, the finance ministry removed PAN requirement for investing up to Rs 50,000 in mutual funds through the systematic investment (SIPs).

Then, in back-to-back interventions, the Secu-rities and Exchange Bo-ard of India (Sebi) remo­ved entry load on fund investments and disciplined fixed maturity plans, products that were at the root of the liquidity crisis.

In the first fortnight of November, two major developments took place. First, the Association of Mutual Funds in India, or Amfi, announced the creation of a common online trading platform for mutual funds by March. On Novermber 16, Sebi allowed mutual funds to be traded on stock exchanges and cleared the decks for stock brokers to offer mutual funds transaction services.

While the online platform will end paperwork in mutual fund trading and empower investors with lots of information and choices, the sto­ck exchange platform takes the pro­duct an extra mile to at least a thousand cities and towns, that are now beyond the reach of fund houses.

So, how do these moves benefit an investor? As a mutual fund inve­stor, you will now have the facilities available to secondary stock market investors — that of dematerialised trading, single-account operation, instant buying or selling of a product at convenience and choosing the best schemes with the necessary backup of comparative data and information being made available.

Amfi chairman AP Kurien says this is a very good move for expanding the reach of mutual funds. With the extensive broker network across the country, mutual funds will now reach every part of the country.

"We expect Sebi’s move to make things convenient for the retail investor, who today is well-informed and demands a quick turnaround time. Over the past decade, the shift to online transactions has steadily increased. Mutual funds are best bought online as it not only provides complete transparency to investors, but also offer best-in-class portfolio tracking,” says Vineet Arora, head of product and distribution at ICICI Securities, whose trading platform ICICI Direct already sells mutual funds through its broking terminals.

Modalities and the exact date for implementing the new system are still to be decided and the industry is still trying to assess its exact impact.

Mutual fund tracker Value Research’s CEO Dhirendra Kumar says it’s not going to be a stock trading kind of situation. Instead, it will be an order outing system, through which exchanges will route orders to fund houses.

There are some mutual fund schemes — mostly exchange-traded funds (ETFs) and closed-end plans — which are already listed in stock exchanges. There are about 40-odd schemes listed on BSE, including 18 ETFs. In case of these schemes, fund units can be traded like any publicly-traded stock, which means one can even buy units of a closed-end fund or an ETF below their current net asset values.

But this will not be the case with other listed funds. Here, an investor will be buying and selling fund units at the net asset value (NAV) of the previous day and redemption will mean cancellation of holding and not selling it to another investor. And, as in stocks, the proceeds of any redemption will get credited to inve­stor’s account only on the third day.

What will actually change the mutual fund universe is the entry of stock brokers as intermediaries.

“Mutual funds being an underpenetrated segment, any new mode of distribution or sale of such sche­mes is a welcome move. However, it is too early to gauge the impact of the move," says IDFC Mutual Fund managing director Naval Bir Kumar.

Kumar feels one should not be too euphoric about it. For, the average volume of trade in most listed sche­mes is mostly in three digits. Gold funds that see volumes in thousands, are still not comparable with even small-cap stocks. For instance, the Gold Benchmark ETF of Benchmark Mutual Fund has an average two-week volume of 7,117.

“As far as volumes are concerned, I am confident brokers will manage to bring good volumes,” says Kurien.

Dhirendra Kumar says the new system should work out fine. “Stock brokers will feel more motivated to push fund products, especially in smaller towns and cities,” he says.

Suresh Sadagopan, a certified financial planner, who runs the Mumbai-based Ladden 7 Financial Advisories, has some reservations about the move. He feels stock brokers may not be too tempted to sell mutual funds for a meagre fee that an investor may be willing to pay, and mutual funds being long-term investments, a stock broker may try to drive a fund customer to direct equity, as that will earn him commission for both buying and selling, that too at regular intervals.

“On this count, the Sebi move could defeat the purpose of its earlier orders of doing away with all kinds of intermediary costs in mutual fund investments,” says Sada­gopan. At the same time, he see it will prompt fund distributors to align their businesses with stock brokers, thereby creating an entirely new business model.

Amfi’s AP Kurien doesn’t think stock brokers will try and div­ert mutual fund mo­ney to direct equity.

Motilal Oswal Financial Services managing director Motilal Oswal also doesn’t see any problem. “It all depends on the client’s profit and investment strategy. In a competitive market, brokers will now be looking at offering portfolio services.”

Broking houses, which sell mutual funds on their platforms, say onli­ne fund buying volumes have not be huge. “It has to be a combi­nation of online and off­line sales,” says Oswal.

ICICI Securities’ Arora is optimistic and sees it picking up fast. “Our equity mutual fund sales have gr­o­wn by 50 per cent in the last qu­ar­ter alone. We have also seen a tre­nd in customers moving offline portfolio to online platforms,” he says.

Other industry observers say that while it may take some time for the online platform to catch the fancy of investors, it will eventually help reduce the cost for both investors and fund houses.