Mumbai, Oct. 4: In another attempt to increase the reach of mutual funds, the Securities and Exchange Board of India (Sebi) today allowed MF distributors to use the infrastructure of stock exchanges for purchase and redemption of mutual fund units from asset management companies on behalf of their clients.
This will be in addition to the existing channels of mutual fund distribution.
The move is aimed at leveraging the stock exchange platform, which would eventually help MF distributors to improve their reach. In November 2009, Sebi had first allowed the use of stock exchange infrastructure to facilitate transactions in mutual fund schemes.
However, this facility was so far available only to registered stockbrokers of recognised stock exchanges.
“It has been decided to allow MF distributors to use recognised stock exchanges’ infrastructure to purchase and redeem mutual fund units directly from Mutual Fund/AMCs on behalf of their clients,” the market regulator said.
The availability of the stock exchange infrastructure for the distributor is expected to benefit the domestic mutual fund industry, given its reach in many cities, through more than 2 lakh terminals.
However, Sebi said only a mutual fund distributor registered with the Association of Mutual Funds in India (AMFI) and who has been permitted by the stock exchange concerned would be eligible to transact on the bourses.
The stock exchange will grant permission on a request made by an AMFI registered MF distributor on the basis of criteria, including fee and code of conduct among other rules that it has laid down.
Sebi said MF distributors would not handle payout and pay-in of funds. “The stock exchange shall put the necessary system in place to ensure that pay-in will be directly received by the recognised clearing corporation and payout will be directly made to investor account,” Sebi said.
In the same manner, units shall be credited and debited directly from the demat account of investors, it added.
Over the past couple of years, Sebi has been taking measures to incentivise distributors to sell mutual fund schemes. In 2011, it rolled out an incentive to distributors when it allowed them to charge Rs 100 as transaction charge per subscription for investment above Rs 10,000. This came after the regulator had in 2009 barred entry loads, hitting mutual fund sales.
In July, Sebi had allowed mutual fund distributors to take up “limited purpose membership” at stock exchanges for selling mutual funds. Limited purpose membership means that distributors will have to comply with less financial and compliance burden to use the infrastructure of stock exchanges.