Completing the investment process smoothly is a primary requirement of any mutual fund investment. Each route has a different process and every investor has to understand this carefully so that their transactions go through without problems.
Now there is a larger opportunity available for the investor to use different routes while making their mutual fund investment and the choice is likely to increase in the future. This is the reason why the investor needs to be aware about the similarities and the differences in the various routes.
Methods
Currently there is only one way in which investors can buy and sell units in open-ended schemes of mutual funds. This can be done by completing the transaction directly with the mutual fund.
| Using different types of services | |||
| Factor | Broker | Direct | |
| Access point | Large in number | Limited in reach | |
| Time taken | Faster transaction | Variable depending upon situation | |
| Multiple investment option | Possible | Only fund products | |
| Applicable value | Based on NAV | Based on NAV | |
| Nature of player | Intermediary | Final authority | |
How MF investors can avoid entry load
So in case there is a need to buy more units then the investor can put in a request to the fund to repurchase units while if they want to redeem their existing units then they need to deal in the same manner with the fund itself. In terms of places there are the mutual fund offices as well as some specified offices of the registrar that will provide this facility to the investors. In addition there is the direct online facility, but that is used by very few people currently.
There is now an additional option that is likely to be made available to the investor and this is in the form of stock brokers who are likely to become the centre where purchase and sale of units can take place.
Fund management style has implications for investors
Investors would then be able to go to such players and complete their requirement rather than having to go to the fund house directly. This will be a different kind of proposition and it is vital that the investor is ready with the knowledge about the similarities and differences that can occur in this situation.
Distinguishing factor
There will be several points that will be different when the investor uses the route of the stock broker rather than going to the mutual fund directly and this will give rise to several points that need close consideration.
The first thing that will happen when the stock brokers are allowed to deal with mutual fund units is that there will be a choice available for the investor at one single place.
This will be a major distinguishing point because currently there is no option for the investor but to go to the office specific to a particular mutual fund. For example, if the investor wants to buy a banking fund offered by a mutual fund, then they need to go to the point of contact of that fund. This might be convenient in cases where the investor deals with just a few funds but there is little in terms of the choice about where they can transact.
How 'exit loads' affect your MF investments
Making choice
Once a large number of stockbrokers are made eligible then investors can make the necessary choice and then decide on the player that they want to use. This option will be easier than the existing one, but will require some time before such a system is seen in the real world.
There will also be some time saving in the entire process. Currently if an investor wants to buy units of several funds then in most cases they will have to deal with the office of each of the fund house and this is time consuming and tiring. In other words the activity needs to be repeated in many cases when a similar process has to be followed.
All about infrastructure funds
However, when it comes to dealing with the stock brokers this will not be the case because of the fact that most of the mutual fund options or schemes will be available with them so they can complete their requirement at a single place quickly and this will most likely be incorporated in the trading software provided by the brokers.
A lot of satisfaction and confidence that is developed by the investor in the investment process depends upon the manner in which service is provided to them. In all the cases it is ultimately the mutual fund will deal with the creation and the extinguishment of the units so all the details will emanate from this source. This means that in the actual manner of operation on the back end there is little that will be different because the mutual fund will still control the entire sequence of events.
Without intermediary
For those who are not confident of the manner in which the stock brokers will deal with the entire situation then they can deal directly with the fund itself and so the intermediary is not present and hence this can reduce their worries regarding service also.
The conditions that are related to the transaction including the applicable net asset value as well as the eligibility and the time period for the submission of the units to be counted for the value on a particular day will not change.
This is the similarity for all situations and conditions so in this case the investor will find that the rules of the game have not changed. In such a position they will have to deal with these points in the same way as before.
Ultimately the performance of the scheme and the returns that are generated will depend upon the fund house and how they manage the funds so there will be no change in this area. In such a situation, the investor would need to know that the introduction of the broker as a route is just a means of investment and not actually a change in the overall manner of the funds being managed.
Arnav Pandya is a Chartered Accountant and a management graduate from IIM Bangalore with a specialisation in Finance. He is also a Certified Financial Planner with experience of over a decade in the field of personal finance.
The views expressed in the article are the author's and not of Sify.com.
