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Stock Brokers Allowed Into MF Trades

The market regulator’s step will help the AMC, which suffered a distributor whiplash

The Securities and Exchange Board of India (SEBI) has transformed the world of mutual funds again.

After abolishing entry loads, the market regulator has issued orders that look to, “Facilitate transactions in mutual fund schemes through the stock exchange infrastructure”.

In other words, it has paved the way for investors to buy and sell MF units through stock brokers.

SEBI further elaborated, “The infrastructure that already exists for the secondary market transactions through the stock exchanges with its reach to over 1,500 towns and cities, through over 200,000 terminals can be used for facilitating transactions in mutual fund schemes. The stock exchange mechanism would also extend the present convenience available to secondary market investors to mutual fund investors.”

This has enlarged the scope for investors to choose their point of transacting mutual funds deals. While currently, investors could buy units from the fund house directly, through distributors, or a few online portals, the new SEBI order adds a huge distribution channel to the equation. It was a model restricted in reach.

According to SEBI, it is taking this step, due to this very reason, and this new move will enhance the reach of the mutual fund industry to more towns and cities.The geographic reach of the mutual fund industry would indeed, be increased hugely. This is put in perspective by the fact that at present, 70-80 per cent of sales of mutual funds come from 10 cities. But the SEBI move will allow funds to be able to reach across the country.

However, stock brokers will have to get the necessary certification to become eligible to sell MF units like equity shares. This will ensure they are sufficiently knowledgeable about the fund industry, its selling practices as well as investor interest.

The move will certainly help the asset management companies (AMCs) as they were feeling the ill effects of falling sales and rising redemptions due to distributors going slow, or even boycotting, the sale of MF schemes, as their commissions had fallen drastically as a result of the implementation of the no load rule.

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