Mutual Funds
Online mutual fund trading increases cost, say distributors

Industry experts say that demat accounts increase the cost for mutual fund investors and will not help in penetration of funds

Stock market regulator Securities and Exchange Board of India's (SEBI) recent plans to introduce mandatory demat accounts for mutual fund investors has again brought forth the issue of cost of investing in mutual funds. The regulator in August 2009 had abolished entry loads on mutual funds to protect retail investors and to bring down the cost of investing.

SEBI had launched the online platform on the National Stock Exchange (NSE) and the Bombay Stock Exchange to penetrate mutual fund products through 1,500 towns and cities through over 200,000 stock exchange terminals.

The NSE started its online trading platform for MFs on 30 November 2009 and the BSE launched its BSE StAR MF platform on 4 December 2009. However, the limited mutual fund knowledge of stock brokers and high costs have not attracted investors towards these platforms. 

"Under this regime, the broker will still get 0.25% for a 'buy' or 'sale' transaction.

The mutual fund investor used to pay 2% to 6% for buying the same mutual fund prior to the SEBI ruling of 1 August 2009. So, this is not bad-it is cheaper. There is still room to pay an Independent Financial Advisor (IFA) up to 1% for all his efforts and advice. And by paying two separate charges-a fee for buying or selling on the exchange and a fee for the advice, the investor gets to know exactly what he is paying for, how much he is paying, and whether he is getting value for money for those fees paid. Each market participant-the fund manager, the broker, the advisor-must be good at what he does and get paid for it from a satisfied client," said Ajit Dayal, director, Quantum Mutual Fund.

"If a one-time investor in a mutual fund wants to invest Rs5,000, he has to spend Rs1,000 (20%) of his investment value for demat account opening and other charges, after that also he has to pay yearly charges. If the market is not able to generate returns he will lose 50% of investment in charges only.

If he wants to sell he has to approach the brokers. Today most of the retail investors in stocks lost their money heavily due to misinformation and wrong recommendation by the brokers. In that case investors are not going to benefit," said Vasanthi Krishnamurthy, a CFP.

Currently 17 fund houses sell their units on NSE's NEAT MFSS while 18 do the same on BSE's StAR MF platform. The industry has also seen a slew of exchange traded funds (ETFs) being launched on the exchanges.

Yesterday Moneylife carried an article which voiced strong objections from industry experts regarding SEBI's plans of boosting mutual fund volumes on stock exchanges by allegedly forcing a mandatory demat account for all mutual fund investors. (Read here: ( http://moneylife.in/article/8/6032.html)

Equity funds have seen an exodus of 2.87 lakh investor accounts between November 2009 and May 2010 when the mutual fund industry witnessed the launch of 10 new equity funds in the same period. The regulator has introduced a slew of regulations in the past one year including a crackdown on upfront commissions doled out to distributors.

"The focus must be on getting the products right and on getting each of the financial participants to work in the interest of the investors. Once you have this "pilot" in place-of an orderly and transparent system-then it makes sense to seek penetration. Why give the poor investor in Tier-II and Tier-III towns the terrible products that exist today? Clean up the mess, then offer them the safer products," added Mr Dayal.

"It is true that making investors hold their investments in demat form is a compulsion. In the case of mutual funds, the statements of account are not certificates-hence there is no need to save them from fire or flood; there is no fear of misplacing them (as they are already electronically handled by the registrar); one just needs the folio number," said Alok Khanna, a Kanpur-based financial planner.

"I have not seen any other industry/industries having so much micro-management by the regulator. On one side the government talks of its citizens being empowered and self-sufficient. On the other side it allows such self-defeating regulations to play havoc," said an IFA, preferring anonymity.
 

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COMMENTS

dhara

7 years ago

ON MF

ashish

7 years ago

I think Sebi & it's chief take big chunk of money from BSE & NSE Because it's all decision more beneficial to BSE & NSE rather then Customer.

Roopsingh

7 years ago

The cost of trading through Demat is comprised of charges as listed below-
1-demat opening charge(min 500 Rs)
2-demat annual maintanance charge(min250 rs)
3-demat transfer charges-15 rs per security per transaction (minimum)
4-inter depositery benificiary charges( a new way of pick pocketing)
5-demat closing charges-few broking houses use this
6-short delivery charges which can be levied in case of Mf units also if punching is wrong /but it is never levied in present model
7-brokerage on sell and purchase which is normally 50 paisa(.5%) per sell and .5% per buy-with STT and other charges it is .75% or 1.5% in a trade cycle-which is more then AMC charges-
AMC's send printed statements and many other services which are more costly-but AMC's put no extra charge for a 1lac or 1k investor-

Now with all these charges how a retail investor will come forward to invest in MF is a BIG BIG question mark-may be SEBI has some plans to do some CHARITY for MF investors -then it can wipe off all these charges-
but i doubt Brokers and Deposietries will ever do this loss making business

NIPUL SHAH

7 years ago

GOVT. IS NOT IN FAVOUR OF INVESTMENT PSYCHOLOGY OF INDIAN PEOPLE. GOVT. WANT PEOPLE SHOULD SPEND AND LIVE HAPPILY TODAY DO NOT WORRY OF RETIREMENT. THEY WANT MORE MONEY SUPPLY INTO THE ECONOMY AND STOP SAVING, IT IS ALL DONE BY MNCS SELLING PRODUCTS IN INDIA. THEY DON'T WANT TO BOOST MF SELLING BUT THEY WANTED TO REDUCE AND PROMOTE SELLING BY BANKS SPECIALLY HDFC BANK. THERE IS ABSOLUTELY NO ROLE ON SIDE OF AMFI. THEY HAVE INCREASE IFA'S RENEWAL FEES OF ARN CODE WHICH WAS 500 AND NOW IT IS 2500. THEY WANTED EARN BUT WE SHOULD NOT EARN. THEY DON'T KNOW THE INVESTMENT PSYCHOLOGY OF INDIAN PEOPLE. I THINK REGULATOR HAS NO KNOWLEDGE OF THE INDIAN TRANSPORT SYSTEM WHAT THE COST OF TAXI AND RIKSHAW FARE FOR GOING ONE PLACE TO ANOTHER. REGULATOR SHOULD REDUCED THEIR SALARY TO 50%. AS THERE IS NOW NOTHING TO REGULATE. NO COMMISSION ON MF JUST SELL BECAUSE U WANTED TO SELL, THEY FORM NISM TO MAKE MONEY. WHY SEBI, IRDA, NISM, AMFI SO MANY REGULATOR. ONLY SEBI IS ENOUGH.

Chandrakant PAREKH

7 years ago

MY DATABASE TELLS ME THAT NEARLY 41.06% OF MY INVESTORS DON'T HAVE ANY DEMAT ACCOUNT. THESE SMALL INVESTORS HAVE AVERAGE AUM OF RS.1,02,500/-, THE AVERAGE AGE OF THE ASSESTS BEING 3.56 YEARS.
IF SEBI IS ADAMANT ON INSISTING OPENING OF DEMAT ACCOUNT FOR MUTUAL FUND INVESTORS, I WILL BE DEFINITELY LOOSING THESE INVESTORS.

Waka Waka! TV sales up during the World Cup

This may not be the La Liga or the English Premier League, but the World Cup has its own flavour. This is reflecting on TV sales

The Fédération Internationale de Football Association's (FIFA) World Cup is underway and football lovers wanting to watch their favourite stars like Lionel Messi, Cristiano Ronaldo and Kaka score goals are looking to get themselves new TV sets. The sales for sets in India's football-crazy States have increased and many TV manufacturing companies, at least for the next month, are specifically setting their sights on these States to push sales.
 
States like West Bengal, Goa, Kerala and parts of the North East-especially Assam and Meghalaya- where football is popular-are pushing the sales of TV sets. "Our focus for the World Cup is restricted to these States, as that's where the action is coming from. There is a football frenzy taking place," said Anand Ramadurai, general manager, marketing, Onida.
 
The rise in sales is not just limited to the States where football is extremely popular-there also seems to be marginal hikes in sales in Maharashtra, Jharkhand, Bihar, Delhi and Orissa, according to officials.
 
Firms expect a substantial rise in sales during June to July compared to the same period last year thanks to the World Cup-some are even expecting more than 100% growth in their sales. "World Cup (TV) sales have been very encouraging, especially in the Liquid Crystal Display (LCD) segment where we expect an overwhelming response. The growth is very substantial, over 100% in both sales quantities and values," said Saurabh Dhoot, director, Videocon. While Onida sees a rise of 10% to 12% in LCD TV sales in the next month, Cathode Ray Tube (CRT) TV sales are expected to grow at their annual rate of 3% to 4%.
 
"The sales for flat panels has picked up from the 1st week of June, especially in Kerala and West Bengal," said Manish Sharma, director marketing, Panasonic India.
 
Consumers are choosing LCDs over CRTs, according to industry officials. "The consumer is looking for the upgrade from CRT to LCD and that's where lies the critical issue of availing this opportunity and creating big volumes," Mr Dhoot added.
 
Mr Ramadurai also added that consumers have been delaying their purchases and waiting for prices to drop. "LCD prices have been dropping consistently over the past 18 months or so. LCDs (32-inch) are today available for even Rs25,000, which was unheard of only a year or so back. The drop in prices has been different across companies," he said.
 
There also seems to be a demand for 'Ultra Slim' TV sets. "(For) this World Cup, the major impact is due to (the) competitive price band in (the) Ultra Slim category, which is the major value driver," added Mr Dhoot.
 
This has resulted in many firms looking to aggressively promote their products in States where football is popular. They are launching various schemes for new TV sets.
 
Haier India has launched a 'Free Kick offer' which gives the consumer a scratch card scheme, where on purchase of an LED or LCD TV above 81cm, a customer can win 100% cash back or an autograph from Haier's brand ambassador John Abraham, on an Adidas track jacket.
 
Videocon is promoting consumer offers in satellite LCDs. The scheme is supported by both outdoor & print advertising, in-shop promos and contests.

 It has also introduced a money-back scheme called 'Paisa Vasool offer" on satellite LCDs where the consumer gets a two-year subscription free.
 
Onida is offering a 'World Cup to World Cup' four-year warranty plan in States like West Bengal and Goa. It's also offering consumers scratch card money-back offers for consumers in the North East and Kerala. Onida is promoting its offers through regional TV and print ads.
 
Tongue firmly in cheek, Panasonic India's offer is called 'Hand of God'. This entitles the consumer to a sure-shot gift upon the purchase of a plasma or LCD TV.

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Govt to table direct taxes code in monsoon session of Parliament

If Parliament procedure is complete and it becomes a law, it will be implemented from 1 April 2011, revenue secretary Sunil Mitra said after releasing the revised DTC draft

The government today said that it will introduce a draft legislation on the Direct Taxes Code (DTC), which would replace half-a-century old Income Tax Act, in Parliament in the forthcoming monsoon session, reports PTI.

"If Parliament procedure is complete and it becomes a law, it will be implemented from April 1, 2011," revenue secretary Sunil Mitra told reporters after releasing the revised DTC draft.

On the proposed tax slabs, Mr Mitra said, they would be reflected in the draft legislation to be placed before Parliament.

He said the revised draft has sought to address major concerns of stakeholders. These include treatment of the Minimum Alternate Tax (MAT), taxation of long-term savings, capital gains and housing loans. MAT paid by eligible companies to be computed based on profits and not on assets and retirement funds to continue to be exempt from tax on withdrawal.

The government, Mr Mitra said, had received 1,600 comments on the first draft released last year.

The bill, overhauling India's direct tax laws, will be referred to the standing committee of Parliament after introduction.

The Parliament panel, he added, would again consult the stakeholders, Mr Mitra said.

Finance minister Pranab Mukherjee had promised in his Budget speech to implement the new direct tax laws from next fiscal.
 

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