THERE has been a slow start to the process of investing in mutual funds through stock exchanges. Even the waiver of fees has not resulted in a runaway increase in volumes. While the fee waiver is a positive for investors as it reduces cost, there are many other factors that play an important role in decision making.
Here is a close look at some of them.
Knowledge required: Investors need to be aware that there is a facility for buying MFs through stock exchanges. A number of people investing in stocks are interested in MFs, but converting them into MF investors is a different game. For, many of them are not aware of the funds available for investment on this platform. They need to find out which funds are available for investment through this route. They also need to be told how they can transact MF units through stockbrokers.
One advantage of using the stock exchange route to buy MFs is that the investments will come into the same demat account that holds shares and there will be a single place where all holdings will be reflected.
This makes it easier for the investor to monitor wealth and make investment decisions.
Procedure: The other thing that an investor looks out for is the procedure followed for making an investment. It becomes simpler when the investment is done through stock exchange as personal details and other regulatory information that one is required to submit are negligible compared with a mutual fund transaction done by filling out a physical form.
The easier the procedure, the better it is for the investor, more so when you are thinking of an investment as part of a larger portfolio.
Returns: While going for an investment, an investor first looks at the return a product is able to generate. This is why one prefers certain investments to the rest. When it comes to mutual funds, there is no difference on this basic point when you compare them with stocks.
The ability of a product to generate returns as per the need should be the basis of any investment decision. If an investor does not find a scheme that can earn her as much return, she is bound to ignore that product. Even cost waiver in place on the NSE is inconsequential there. Because, the investor is not investing to save costs, but to earn good returns.
Flow: An investor also needs to understand the difference of investing in a mutual fund product. Just because you can buy fund units on stock exchanges does not mean you should behave as if you are buying stocks.
There will be equity-oriented funds that can be bought on stock exchanges, but there are many differences between a stock and a MF and an investor needs to understand this. An investor can sell a stock within a couple of days of acquiring it.
One cannot expect to do the same with a fund scheme.
MFs are instruments that have to be considered over a longer period. What is important is not just the volume that is generated, but how many investors are using the facility. Hence these investments will be made and then held till it achieves desired objectives.
This is precisely why an investor has to understand the nature of the investment and not blindly compare it with stocks while looking at the route one is using for the investment process.
