Mumbai, April 27: If all goes well, India will get its first online supermarket for mutual funds in the next two to three years.

The mutual fund industry is mulling the option of creating a common platform that investors can plug into to buy and sell units of the 956 schemes that currently exist in India’s mutual fund universe.

The common platform could mimic the manner in which investors pick and dump stocks through various online trading platforms.

The idea is still at a very nebulous stage: a committee of the country’s six top asset management companies (AMC), formed under the aegis of the Association of Mutual Funds in India (Amfi), is tossing a salad of options to put together an efficient and scalable model within the next two to three years.

Sources said the committee formed by Amfi to conceptualise the platform includes some of the biggest names in the business: Reliance Mutual Fund, UTI Mutual Fund and Franklin Templeton.

“We have a committee that examines the possibilities of incorporating such concepts in India. The committee — called the new marketing and transaction initiatives committee — is evaluating the feasibility of implementing such a model in India,” Amfi chairman A.P. Kurian told The Telegraph.

Stumbling blocks

But it won’t be easy: there are several infirmities that need to be dealt with. First, the industry will have to devise a suite of regulatory norms under which such a system will operate. Second, it will have to devise modules to educate investors in mutual funds who are usually more risk averse.

Ready models

Luckily, there are several models to choose from since online trading platforms exist in the US, Australia, Singapore, Hong Kong, and the UK. Websites such as fundsdirect.co.uk in the UK and selfinvest.com.au in Australia provide such platforms.

At present, mutual fund investors can buy or sell their units by either directly applying to the concerned AMC, or through a mutual fund broker.

Matter of choice

Investors — especially the newbies — find it easier to select funds through a broker who is better equipped to guide them through a minefield of choices.

Although this simplifies choices, investors could still end up with dubious investments and be paying as much as 2.25 per cent of the invested amount to the broker as his commission.

Pocket pinch

If an investor chooses to buy a fund directly from an AMC, he won’t get information about other AMCs in the market. The investor will not know if there are better funds in the same category — so the money could go into a riskier product that yields inferior returns.

A common trading platform will not only enable investors to compare the performance of funds, but also shorten the ladder of costs associated with investments in mutual funds.

Patient watch

“It will take a little time, but it is a do-able concept in India. Mutual funds are still complicated financial products in India compared with stocks. The platform will have to be built around a system that recognises the varying appetites for risk among investors and then differing expectations about returns,” says Dhirendra Kumar, CEO of Value Research Online.

Kumar, however, sounds a caveat. He reckons that an online trading platform will work only when investors are assured that no one with a commercial interest culls information that they supply and analyse their trading patterns and later badger them with offers.

“Equally, the AMCs would want to be guaranteed that their data would be kept confidential among the peer group players,” added Kumar.

Net help

In India, websites such as icicidirect.com offer online trading channels for mutual funds, but require the investors to open an account before using the facility. A processing fee of Rs 750 is charged for opening an account, which allows investors to trade stocks and mutual funds online.

If an investor opts for trading mutual funds only, the distributor charges a fee of around Rs 250.

Over and above this, an AMC charges an entry load of 2.25 per cent, an annual asset management charge of 1.6 to 2.5 per cent, and an exit load.

“Distributors who offer online trading facilities in mutual funds charge a commission to the investors. These charges will come down once a common platform is implemented,” Kumar added.

Trading account

A demat account is mandatory for trading in stocks and the industry experts believe that a common mutual fund platform mayalso require investors to open a special trading account.

“There are various models we are currently examining — the Canadian model, the Australian model and so on. The model required to implement this platform is not available in India,” said an official closely involved with the committee’s deliberation.

“A common platform, like an exchange, would not only improve efficiency and reliability, but also lower the annual asset management charges for investors. The registrars who currently distribute mutual funds might be impacted by the move,” he added.

“The platform is most likely to be regulated by the Securities and Exchange Board of India,” the official added.

“We have to thoroughly examine the concerns associated with the concept before physically implementing it in India. There are various models available abroad, but we need to analyse whether any of them will work in India,” Kurian said. However, Sebi chairman C.B. Bhave declined to comment on the plans to implement the concept.