Mutual Funds
Demating the demat!

Mutual fund units don’t come as physical certificates. They exist only in electronic form. So, why is SEBI (the Securities and Exchange Board of India) hell-bent on popularising demat of fund units, ignoring more pressing issues like common account statements?

SEBI has just issued a circular making it mandatory to provide demat option for all funds effective 1 October 2011. In a circular dated 19 May 2010 on the transferability of mutual fund (MF) units, SEBI has directed all AMCs (Asset Management Companies) "to clarify by way of an addendum that units of all mutual fund schemes held in demat form shall be fully transferable." The circular says, "It has been observed that in their close-ended schemes, many mutual funds provide an option to hold units either in physical or in demat  form, but offer no such option in case of open-ended schemes. In order to facilitate investors, mutual funds should provide an option to the investors to receive allotment of mutual fund units in their demat account while subscribing to any scheme (open-ended/close-ended/interval).

Therefore, Mutual Funds/AMCs are advised to invariably provide an option to the investors to mention demat account details in the subscription form, in case they desire to hold units in demat form. Mutual Funds/AMCs shall ensure that (the) above-mentioned option is provided to investors in all their schemes (existing and new) from 1 October 2011 onwards."

The SEBI circular also says that "It has also been observed that often investors' request for dematerialising their units is rejected as Depository Participants are not having/or having incorrect ISIN (International Securities Identification Number) of each option of the scheme. In this regard, Mutual Funds/AMCs are advised to obtain ISIN for each option of the scheme and quote the respective ISIN along with the name of the scheme, in all Statement of Account/Common Account Statement (CAS) issued to the investors from 1 October 2011 onwards."

All this would have made sense if currently MF companies were offering physical certificates like how companies used to issue shares. But MF units are already offered by fund companies in electronic form. Why would anyone want to demat something that already exists in electronic form? The market regulator has given this foolish idea a bigger push with a circular.

Although all SEBI is saying is that the demat option should be made clear, distributors are wondering as to why is the regulator giving a thrust continuously in this direction? Does SEBI want to encourage the fund industry to take the stock route (exchange-broker-demat)? This is what the distributors suspect, but we don't think SEBI is necessarily working for the brokers.

SEBI's decision to continuously push the demat route stems simply from the fact that the regulator is living in an ivory tower and has no touch with what is happening on the ground. It does not talk to investors or distributors.

One of the distributors argued, "What investors really need is a common account statement (as mentioned earlier). Would that serve SEBI's purpose? A CAS and an online platform to advisors would ensure more reach and reduce the expenses." But unfortunately, SEBI has no mechanism to listen to people who have actual ground-level experience.

 A few months ago, NSDL (National Securities Depository Limited) came out with an ad claiming that it is 'smart' to use the demat route for MFs. But the problems of using the broker-demat route and the cost of taking this route for no added benefit will continue to keep investors away. Moneylife recommends one should make one's financial life simple-avoid MF demat as long as it is not compulsory. But the way SEBI is headed, you may be forced to demat your paperless units!



Jaideep Merchant

5 years ago

I would strongly recommend moneylife to look into the charges various depositories are charging. A few days ago I lodged a slip with a DP for same day execution for an on market trade they said it would cost me 0.25%. This was almost twice the brokerage the broker was charging me to do this transaction. If this is a trend then investors will end up paying huge charges for doing mf transactions in demat form. Having demat was a good move for the market but now it seems to be used as a tool to exploit investors. I urge money life to do a story on demat charges.


5 years ago

I’ve been raising this issue in various forums for the last few months. Thanks to magazine like Moneylife who has been educating their readers regularly on this issue.

When the proposal of ‘demating the demat’ was initiated under the previous regulator head, I feel that the intention might have been to help depositories, exchanges and brokers.

I don’t understand the logic carrying forward an inappropriate decision like that instead of reversing the same.

Demating a mere account statement has lot of disadvantages to investors and I don’t see any advantages.

I’m sharing the same below:

Request Moneylife to take this issue up with the regulator and industry body.


5 years ago

Bhave ho ya Sinha-koi fark nahi padta-SEBI wale apna DIMAGI DIWALIYAPAN )Dikhane me koi kasar nahi chhodenge.(Sebi people will not spare a single chance to show their Emptyheadness.)

V Raghunathan

5 years ago

This is a question which was existing all along. You voiced it now. But none of the media is making noise about this except you. What to say of this!

Union Bank of India launches ‘unioninclusions’

Under the ‘unioninclusions’ initiative, Union Bank has launched five financial inclusion schemes

The Union Bank of India has launched ‘unioninclusions’, an initiative to deepen the financial inclusion. ‘Unioninclusions’ is an initiative by Union Bank of India as part of the nationwide Swabhimaan programme.

Under the ‘unioninclusions’ initiative, the bank launched five financial inclusion schemes. This includes opening of 11 specialised financial inclusion branches, biometric card-to-card remittance facility for migrant labour, mobile van banking to extend banking reach to unbanked villages in Odisha, comic book series for spreading financial literacy among rural masses and solar powering of Union Adarsh Gram

Financial Inclusion branches will have one-main branch to which the allotted villages would be attached in such a fashion that a single branch would monitor the working of 20 customer service points each. The branch will drive the implementation of Financial Inclusion projects at the field level while also ensuring good customer service under branchless banking.

The Bank has also launched the facility of biometric card-to-card remittance. Under this, migrants will be able to transfer money from his card to the card of his relative in the village, who can avail cash from the BCs (business correspondents) in the village itself.

The mobile van banking will cover those villages which are remotely located and infrastructure availability is poor. Under this model, banking services would be provided through a van which will move from village to village on specified days. The Van would have the capacity to serve multiple villages each day of the week. The Van would travel to unbanked villages to provide various range of banking services.

The Bank has come out with three comic books in Hindi language ‘Surakshit Bhavishya’ on deposits, ‘Khushhaali’ on loans and ‘Swayam Sahayata Samooh Aatmnirbharta ki ore’ on SHGs.


BHEL annual profit up 40% at Rs 6,053 crore

Company directors recommend share sale of 5% of government equity that could raise Rs4,500 crore

NEW DELHI: State-run Bharat Heavy Electricals (BHEL) today posted a nearly 40% jump in consolidated net profit at Rs6,053.36 crore for the year ended 31 March 2011. The company had a profit of Rs4,326.92 crore in the corresponding period a year ago.

The company's total income on a consolidated basis rose to Rs43,678.62 crore in 2010-11 from Rs34,498.51 crore in the previous year, according to a statement to the stock exchanges. These are audited figures.

The bellwether’s board of directors, which met today, recommended a 179% dividend, amounting toRs 17.90 a share for 2010-11. This would be in addition to an interim dividend of Rs13.25 per share, reports PTI.

BHEL also announced today that board of directors has recommended divesting 5% of the equity out of the Government of India’s shareholding. The stake sale in the engineering firm could yield the government about Rs4,500 crore at current market prices.

The government holds 67.72% equity in the company. The company also said that 10% of the equity sale would be reserved for employees.

BHEL shares were down 6.6% at Rs 1,935.60 each in a weak Mumbai stock market on Monday.

Meanwhile, the company also announced splitting of the stock’s face value of Rs 10 into five shares of Rs2 each.

“The impact due to change in the accounting policy for 2010-11 is an increase in turnover by Rs2,772.79 crore, provision for contractual obligation by Rs2,077.31 crore and profit before tax of Rs695.48 crore,” the company stated.

On a standalone basis, the BHEL saw profit in 2010-11 climb 39% to Rs6,011.20 crore. This is in contrast to Rs 4,310.64 crore in the same period a year-ago. Standalone total income was at Rs43,379.89 crore against Rs 34,198.47 crore in the year-ago period.

The company registered a profit of Rs2,798.04 crore for the three months period ended 31st March which amounts to a 46% rise over the year-ago period. In the comparable three months, profit was at Rs1,909.58 crore.


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