SEBI wants smoother transfer of mutual fund units, but will the investor benefit?
Moneylife Digital Team 18 August 2010

The move might just result in the already beleaguered industry having to shoulder additional costs

The Securities and Exchange Board of India (SEBI) today asked all fund houses to facilitate smoother shift of mutual fund units between two demat accounts. 

The National Stock Exchange (NSE) started its online trading platform for mutual funds (MFs) on 30 November 2009 and the Bombay Stock Exchange (BSE) launched its BSE StAR MF platform on 4 December 2009. The regulator allowed online transactions in mutual funds after abolishing entry loads in August 2009 in a bid to increase MF penetration in smaller towns. However, trading volumes failed to take off as desired by the regulator.

Today's SEBI circular says, "Regulation 37(1) of SEBI (Mutual Fund) Regulations, 1996 states that 'a unit unless otherwise restricted or prohibited under the scheme, shall be freely transferable by act of parties or by operation of law.' The spirit and intention of this regulation is not to prohibit transferability of units as a general rule or practice. However, it is noticed that mutual fund schemes prohibit transfer on a regular basis instead of on an exceptional basis."

According to industry experts, SEBI's order is yet another nail in the coffin for the fund houses.

"The National Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) do not send data of such transfers on a daily basis to the asset management companies (AMCs). This becomes a hindrance in determining the actual beneficiary, i.e., the unit-holder, for benefits, documentation, redemption etc. To get daily data for such transfers, the depositories charge Rs5,000 daily per ISIN, i.e., per net asset value (NAV). This is a prohibitively excessive cost for any AMC. Transfer of units also increases activity at the registrar & transfer agents' end, creates scope for potential fraud, and might encourage non-adherence to the Prevention of Money Laundering Act (PMLA), etc.," Jimmy A Patel, chief executive officer, Quantum Mutual Fund, told Moneylife.

Mr Patel also pointed out that there were many ambiguities in the proposed move by the market regulator. "All in all, this will most likely cause an increase in costs all around without any material benefit to the investor. It helps to note that unlike an equity share whose value keeps fluctuating, the NAV of an open-ended scheme is not very volatile, and a transfer in an open-ended scheme doesn't serve much purpose. Besides, (applicability of) stamp duty too is a grey area. There is no clarity on who bears the cost, in what percentage, etc," added Mr Patel.
"This (SEBI move) will not add any utility for investors. SEBI wants to make mutual fund units more tradable in the stock market. It is doing so to prepare the enabling ground when every instrument will be held in demat form," said a top official from a fund house, preferring anonymity. 

Comments
tripathi
1 decade ago
As far as I, being a mal investor will not be benefited if MF are to be demateialised, Dmat accts are not free, only the brokers will be benefited. They charge money pertransaction whether it purchase or redemption. We investors are to pay for every transaction if not done directly, besides ony chosen one will be made available by the broker, chosen one are those whwre they recieve more commition on upfront and trail. There is no consideration of investors' benefit
alok sah
1 decade ago
units of mutual fund ( except for ETF ) are non transferable. ( as per my information ) .
will someone clarify if these MF units held in demat mode are transferable between one to another demat account ?
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narayan
1 decade ago
With over 3000 schemes are mutual funds ready to part with rs 5000 everyday which amounts to 1.5 crores/annum each schemes have various options (div/growth/bonus) so the cost may be much more.
This will furthur add on to the costs bringing down the returns of funds
NARAYAN
Replied to narayan comment 1 decade ago
Sorry at 1.5 cr/day ie 375 cr/annum which is equivalent to some AMC's aum
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