Half Of AMCs Yet To List Schemes On Bourses; Brokers Too Less Enthusiastic
ABOUT two months after their launch, activity on mutual fund (MF) platforms of stock exchanges remains comatose, as investors continue to stick to the age-old system of buying and selling products through distributors. One reason for this is over half of the asset management companies (AMCs) are yet to list their products on stock exchanges. But more significantly, most stock brokers are less enthusiastic about providing services to transact mutual fund schemes through the new platform.
Though brokers publicly maintain that trading of mutual fund products is the next big thing for them, they are slowly realising the practical difficulties of scaling up the business. Brokers earn majority of their revenues from regular trading of stocks by clients, but mutual fund schemes can't be bought or sold in the same manner as shares.
Mutual funds are trying to project their products as long-term ones, while brokers will find it viable only if they are able to churn volumes. There is a clash in the business philosophy here
Due to lack of clarity about revenues from this business in the foreseeable future, most brokers are unwilling to invest in a big way to service mutual fund trades.
Stock exchanges launched the online mutual fund platforms after Securities and Exchange Board of India (SEBI) in August 2009 restricted commission payments by asset management companies to distributors. This resulted in distributors losing interest to sell mutual fund products, prompting Sebi to allow stock exchanges to introduce a platform through which schemes can be sold, with stock brokers being the intermediary.
NSE launched its platform on November 30, 2009 and BSE started on December 4, 2009. In December, BSE's platform recorded 739 contracts valued at about Rs 18.5 crore and NSE's platform recorded 1079 contracts of Rs 4.47 crore value. About Rs 13,060 crore was redeemed from the mutual fund industry in December.
In January, BSE's platform recorded 463 contracts valued at Rs 10.52 crore and NSE's recorded 253 contracts of Rs 3.14 crore value. About Rs 32,860 crore was redeemed from fund houses in January. Retail investors are also not finding much merit in choosing stock brokers over distributors at this juncture.
This is because buying or selling mutual funds through stock exchanges requires opening a demat account and a large section of mutual fund investors don't have one. Also, for investors, whose purchases are small in quantity, there is no cost advantage.
Many brokers are not comfortable about having clients that just transact mutual fund schemes. This is because brokers risk the possibility of their money being locked in for a few days, if client defaults. A broker is required to pay the stock exchange, after confirming with the client, before 10 a.m the day after the order is made by the client. Now, if the client defaults even after the confirmation, the broker gets to know it only after the cheque is cleared.
