Brokers need clarity before dealing in MF products

Aiming to enhance the distribution network for mutual funds, SEBI has allowed mutual fund schemes to be routed through stock exchange brokers. Are brokers equipped to handle an entirely different business?

Market watchdog Securities and Exchange Board of India (SEBI) has enlisted the services of stock exchange brokers for dealing in mutual fund units. SEBI plans to use the existing infrastructure in stock exchanges for facilitating investors to buy and sell units in a mutual fund. Over two lakh exchange terminals are to be used for facilitating transactions in mutual fund schemes, providing a reach to over 1,500 towns and cities. Notwithstanding infrastructure advantages over current distributors, it remains to be seen how brokers actually go about dealing in mutual fund units. Chandrashekhar Layane, senior VP, Fairwealth Securities said that a separate order routing mechanism would be developed for the same in the existing broker terminal. Existing mutual fund holders who are not having demat accounts would need to open demat accounts to allow smooth transactions through the broker terminal.

The fact is, mutual funds represent a broadly different line of business altogether. Brokers’ expertise lies in dealing with equity instruments and for them, switching over to the complexities of mutual fund schemes will involve a huge learning curve. Said Jagannathan Thunuguntla, equity head, SMC Capitals, “The various qualification exams can help brokers to gain knowledge. However, to make them completely conversant with the nuances of the mutual fund products can take some time. Over a period of time, the brokers can gain the relevant expertise and knowledge. However, the large brokers who have the in-house research arms, databases and the network can have an edge in terms of the research.”

While fund investors will benefit from the convenience of getting access to their neighbourhood broker, clarity is yet awaited on the costs involved for transacting through brokers. Presently, distributors are required to charge commissions directly from investors through negotiation, after SEBI banned funds from levying entry loads or initial fees for participation in their schemes. This has deprived distributors of large commissions and they have lost their incentive to sell mutual funds. Brokers’ charges for transacting in mutual funds would be same as that for equities. This means commissions could range somewhere between 0.25%-0.50% per transaction. However, it is not clear how additional costs such as securities transaction tax and stamp duty would be levied. Mr Layane confirmed, “The commission structure will be roughly equal to a delivery-based brokerage i.e., from 0.25 to 0.50 of the transaction value. Roughly it will be less than the existing entry load—around 1.25% charged by MF houses, which has been abolished by SEBI recently. But still some things will be unclear, like what will be the commission charges for SIP units.” Mr Thunuguntla said, “The commissions that brokers are going to charge will evolve over a period of time, once this new system gets operational and once all the market participants become familiar with this.”

Further, brokers would be wary of the poor volumes that mutual funds normally attract, especially from retail investors. For brokers, trading in equities is a bigger game, where the volumes are far better and hence the total commissions are also larger. Mr Thunuguntla added, “The volumes are better in equities. However, selling mutual funds can give brokers one more revenue stream and over a period of time, even the volumes in mutual funds can pick up.”

Sanket Dhanorkar with Ravi Samalad [email protected]

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    26/11: ‘No fear, our guests are secure and comfortable’

    A year after the deadly terrorist carnage of 26 November 2008, Mumbai’s landmark hotels which were bruised and battered by the brutal attacks have not let the aftermath kill their ‘Athithee Devo Bhavo’ attitude.

    On 26 November 2008, the city of Mumbai was witness to a series of deaths and immeasurable destruction in a terror attack that lasted for three days.
    Café Leopold at upmarket Colaba in south Mumbai, the first place to be targeted, shrugged off the aftermath of the attack and set its sights firmly on the future when it opened for business just three days later. The attack has given this café a new-found popularity as the crowds continue to increase week after week. And nearly a year later, the Gateway of India remains a hot tourist attraction, giving strong signals that this resilient city has discounted the fear factor.
    The Taj Mahal Palace Hotel is a brand synonymous with India’s progress. The Oberoi Group has always been associated with luxury and unforgettable memories. An integral part of Mumbai’s history, they have now become standing testimonials to resilience against terrorism.
    Café Leopold, an iconic meeting place for the youth and a certain class of foreign tourists who want to see India up close, is now doing fantastic business and attracting a new class of customers. Its legend continues to grow all the time. The hotel has been made even more famous by Shantaram, the book by Gregory David Roberts.
    Both the Oberoi and the Taj re-opened for business a month after having suffered a huge loss. Business was slow to pick up in the early days as both hotels were witnesses to empty lobbies and dampened spirits. But not anymore.
    A spokesperson for the Taj Hotel said, “Hospitality business did take a hit due to the global slowdown and the Mumbai terror attacks. But we are confident that the worst is over. Over the last two quarters we have witnessed buoyancy in the market and in business. The sector is well on its road to recovery. There is no fear. Our guests are comfortable and secure. The Taj has always invested in the highest level of security in order to ensure guest safety and comfort. We will continue to update ourselves and abide by regulatory norms and guidelines. We have many of our loyal guests and patrons who have come back and stayed with us. Many international leaders and dignitaries have expressed their solidarity by staying with us. We are humbled and grateful for the support and solidarity expressed by so many individuals across the world.”
    The global economic meltdown during the past year came as a double whammy for the Taj and the Oberoi. Building sophisticated security systems including metal detectors, cameras and manpower to ensure future safety was an additional expense the hotels had to deal with.
    Raju Kane, CEO of Sampark Public Relations Ltd, said, “These two hotels have iconic locations and are the finest banqueting places in south Mumbai where most businesses are located. After the terror attacks, when the hotels were closed for renovation, press conferences did move to other hotels, but when they reopened, conferences shifted right back because of the huge demand from corporates. The security process has become a lot more elaborate and companies aren’t afraid to have their conferences here (anymore).”
    Despite the physical and financial battering, these two hotels seem to have bounced back with a renewed spirit. Sunil Gautam, managing director of Hanmer MS&L Communications, said, “One year is a long time in business parlance. At first, yes, people were sceptical of visiting the high-profile places targeted by the attacks. But in a few months, the scenario changed, as in a busy city like Mumbai, people get back on their feet as soon as they can. If you recollect, we had been badly hit during the 1992-93 riots but the city came back to normalcy in a very quick time. So, it’s back to business with renewed vigour. We have hosted many conferences at both the venues. Business was down for some time after the attacks, as can be expected. The terror attacks are now a thing of the past. People have moved on with their lives and we see a lot of activities at these hotels other than regular press briefings.”
    Another public relations executive says that business has not been affected at these two hotels and companies continue to have their press briefings at the Taj and Oberoi if it suits their budget, convenience and need. Even now, if one were to try to book a hall at either location, it would be difficult to get a date.
    Mr Devendra Bharma, executive vice president, Oberoi Hotels and Resorts Mumbai, said, “This year there has been a significant reduction in the number of events held at Trident over the past year and this consequently means lesser number of press conferences. Less than a month after the incident, on 21 December 2008, Trident reopened.  The hotel opened with all its services, guestrooms, restaurants and banquet halls in pristine condition to welcome guests. The terror attacks on India's financial capital last November have resulted in a sharp drop in visitors to Mumbai, especially foreigners. Several countries issued travel advisories and most companies curtailed travel. The tourism industry also witnessed an unprecedented slowdown, owing to the fear factor.”
    “Many guests who were with us on 26 November 2008, have already returned as residents, while many others have promised to return. The team at the hotel is humbled by the support of our guests and well-wishers. Both foreign and Indian guests have shown their support, as much as non-residents and Mumbaikars have patronized our restaurants. Guests have also chosen to extend their financial support to families of the staff through the Oberoi Care Fund. We believe our guests will return inspite of the attacks, to show their solidarity and support for us,” Mr Bharma added.
    The city of Mumbai is impressed by this never-say-die attitude of these terror-hit establishments and their fight to get back on their feet, stronger than ever. One can only hope that a nightmare of this magnitude will never visit these icons again. – Lorain Viegas [email protected]
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    SEBI-NSDL case gets messier, another PIL filed

    Petitioner seeks court declaration of SEBI’s suppression of Final Orders as illegal, also demands details of investigation against CSDL 

    Just days after the Andhra Pradesh High Court heard a PIL against SEBI for allegedly suppressing a series of final orders in connection with the 2004-05 IPO scam, another PIL has been filed in the same court a couple of days ago, by Srinivas Podichety, reports Web portal Bar &

    The Bar & Bench article reports that the second writ petition, filed by Srinivas Podichety yesterday, has arraigned Dr Mohan Gopal and V Leeladhar as Respondents. These two constituted the two-member committee that examined various charges levelled by the regulator against NSDL in connection with the IPO scam of 2005. The petitioner is seeking a declaration from the AP High Court that the action of not publishing the Final Orders is illegal and is demanding production of all documents from SEBI. Mr Podichety is also seeking details of the investigation against Central Depository Services Limited (CDSL).

    Previously, another aggrieved investor, V Narayan Reddy, had filed a writ petition in the Andhra Pradesh High Court, questioning the market regulator’s action of withholding a Final Order passed by its two-member committee with respect to the role of National Securities Depository Ltd (NSDL) in the IPO scam. He alleged that SEBI is not inclined to publish the Order to prevent adverse consequences for Mr Bhave, as he was the chairman and managing director of NSDL when the scam occurred. His petition also indicates that the report may have indicted SEBI as well as NSDL for failure to protect investors.

    Sanket Dhanorkar [email protected]

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