From Nov 30th 2009 investors have got the ability to transact in Mutual Funds through National Stock Exchange’s fully automated online system. You can place buy and sell order (or in other words subscription and redemption orders) online through your demat account as you currently do for stocks. But it doesn’t mean you can’t buy/sell offline. If you don’t have a demat account you can place orders in the physical mode through an AMFI certified broker by providing specific KYC documents.
For this purpose a fully automated online order collection system called National Exchange Automated Trading-Mutual Fund Service System (MFSS) has been provided to the participants (brokers). This pilot program has started with UTI as the first AMC (Fund house) and others are expected to join soon.
The unit prices will be based on daily NAVs. Moreover, trading in mutual fund units would come at a price to you as there will be charges by the broker (similar to the brokerage charged for stocks). There will also be some charged levied by the exchange and the NSDL. It partially dilutes the effect of removing entry load.
Advantages:
If you have a demat account then life just became easier to you. No more form filling and dealing with agents/distributors. You can build your dream portfolio right from your office cubicle. It will also help you track your portfolio just as you do for stocks.
Disadvantages
If you want to do SIP (Systematic Investment Planning) you will still need to do it offline as brokerages can’t handle that yet. It may become confusing for you to monitor the portfolio.
Implications
This change will have the following implications:
- Rise of more and more companies giving you Mutual Fund research and tips
- Your broker giving you frequent tips to buy and sell. This is because his income comes from transaction charges. The more you trade, more money he makes.
- Growing nexus between brokers and the AMCs. The brokers might advise you to buy a particular fund irrespective of its suitability to you. Similarly you might see an AMC offering its fund only through a select few brokers.
Mutual Funds are the best instruments for long term investments into equity market. Do not start trading in them due to this development. Choose carefully and stay invested for long term preferably through SIP route. That’s how you will be able to reap the benefits.