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MUTUAL fund trading offers investors the option to buy and sell mutual fund units through stock exchanges, in the same way as they trade shares. The recent buzz around mutual fund trading started after the National Stock Exchange (NSE) launched Mutual Fund Service System (MFSS) on November 30 and the Bombay Stock Exchange (BSE) introduced the BSE Star MF venture on December 4, after getting the Sebi approvals for trading of mutual funds through the existing infrastructure of stock exchanges. The platforms have been launched to increase retail participation and volumes, given that the stock exchanges have trading terminals spread across different parts of the country and surpasses the existing distribution network of asset management companies. Both platforms are in the process of tying up with more fund houses and increasing the list of funds which can be traded on their platform.
How will it operate?
Instead of locating a distributor or the branch of an AMC, an investor will now be able to trade mutual fund units through any member of the exchange who is registered as a mutual fund adviser with the Association of Mutual Funds of India (AMFI). Investors can place orders for both subscription/redemption of their units with these members and can opt for either the physical or the depository mode of delivery. For investors looking at shifting to this mode of transaction, the only extra requirement is they will need a demat account, given that the system is fully automated. The platform will be available between the trading hours - i.e 9 am to 3 pm - and investors placing requests during this period will be able to take advantage of the same day's NAV. Moreover, the process is expected to be smoother and quicker and settlements are expected to be made in a period of T+1 working days.
What are the pros and cons?
Apart from faster transactions, the new system will also allow investors to get a clearer picture of their stocks and mutual funds holdings at any point of time from a single report. However, experts say the new platforms are more an order routing system and do not allow individuals to trade with each other on the platform. Moreover, individuals will also have a tax obligation to fulfil for trading on this platform. For instance, all the transactions made in terms of equity-linked mutual fund schemes will be subject to the securities transaction tax (STT), while trading in debt or liquid funds will mean adding a capital gains tax liability. While brokers are looking at this as an opportunity to tap their large network, mutual fund distribution agents feel this will not increase volumes substantially. In fact, many distributors see this as a further hit to their business after the Sebi had abolished entry loads in mutual funds earlier this year.
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