Though stock exchanges provide an easy route for mutual fund
investors to buy and sell schemes, it is proving to be expensive propositions
for investors who do not have demat accounts and those who frequently churn
their portfolios. If one were to consider the fees (both direct and indirect)
payable to exchanges, depositories and registrar and transfer agents (RTAs),
investors end up paying more fees while transacting funds through exchange
gateways.
Currently, there are two broad ways to buy or sell mutual funds. The first one is where the investor approaches an advisor or mutual fund house directly (even through an online portal) to effect a buy/sell transaction. The RTA plays an important role in such transactions, as it takes care of record keeping and customer service for both the fund house and investor. The second route is the stock exchange gateway where depositories play the role of custodians of fund units while RTAs play a smaller role in maintaining customer database for the fund house.
Assuming that investors continue to use the first route (through an advisor or mutual fund house directly), the fund house only has to pay Rs 6-7 per account (as per industry estimates) for RTA services, which are ultimately charged as fund expenses (charged to investor).
If mutual funds are transacted through exchanges, asset management companies pay Rs 18-22 per account to the exchange and RTA agent. Apart from this, the investor, in his own capacity, has to pay anywhere between Rs 150 and Rs 400 as annual maintenance fee of depository account. Investors who do not have a demat account have to pay Rs 350 to open a trading account and Rs 400 to start a depository folio. This will take their initial account opening expenses to over Rs 800.
Direct costs could go up (on exchanges) for frequent portfolio changers as investors will have to pay brokerage in the range of 0.25-0.5% for every transaction. This will dent the concept of no-entry load as investors will end up paying at least 1% in two-way transactions (first to buy and then to sell), apart from losing money by way of exit load. Moreover, investors cannot use fund strategies like switch, trigger or transfers in exchange gateways, say experts.
Fund houses prefer investors to come through the normal route as transaction charges are higher (for AMCs) on the exchanges. Take the case of registrars: Through the normal route, RTAs charge fund houses (which will be passed on to investors) only Rs 6-8 per account. But when it comes to trading through exchanges, RTAs charge Rs 16 to Rs 18 per account. Moreover, fund houses are required to remit a bulk-fee on the basis of their asset base.
In a written complaint to AMFI, a senior official of a domestic fund house requested the industry body to ensure that the enablers of exchange trading do not add a burden of excessive costs to mutual fund schemes.
“These costs are eventually borne by our investors. AMFI should ensure that the costs being charged by NSE, BSE, brokers, NSDL, CDSL, Karvy, CAMS et al, are all negotiated with the spirit of what Sebi is trying to do, that is to ensure wider reach to investors at a lower cost,” the official added.
Currently, there are two broad ways to buy or sell mutual funds. The first one is where the investor approaches an advisor or mutual fund house directly (even through an online portal) to effect a buy/sell transaction. The RTA plays an important role in such transactions, as it takes care of record keeping and customer service for both the fund house and investor. The second route is the stock exchange gateway where depositories play the role of custodians of fund units while RTAs play a smaller role in maintaining customer database for the fund house.
Assuming that investors continue to use the first route (through an advisor or mutual fund house directly), the fund house only has to pay Rs 6-7 per account (as per industry estimates) for RTA services, which are ultimately charged as fund expenses (charged to investor).
If mutual funds are transacted through exchanges, asset management companies pay Rs 18-22 per account to the exchange and RTA agent. Apart from this, the investor, in his own capacity, has to pay anywhere between Rs 150 and Rs 400 as annual maintenance fee of depository account. Investors who do not have a demat account have to pay Rs 350 to open a trading account and Rs 400 to start a depository folio. This will take their initial account opening expenses to over Rs 800.
Direct costs could go up (on exchanges) for frequent portfolio changers as investors will have to pay brokerage in the range of 0.25-0.5% for every transaction. This will dent the concept of no-entry load as investors will end up paying at least 1% in two-way transactions (first to buy and then to sell), apart from losing money by way of exit load. Moreover, investors cannot use fund strategies like switch, trigger or transfers in exchange gateways, say experts.
Fund houses prefer investors to come through the normal route as transaction charges are higher (for AMCs) on the exchanges. Take the case of registrars: Through the normal route, RTAs charge fund houses (which will be passed on to investors) only Rs 6-8 per account. But when it comes to trading through exchanges, RTAs charge Rs 16 to Rs 18 per account. Moreover, fund houses are required to remit a bulk-fee on the basis of their asset base.
In a written complaint to AMFI, a senior official of a domestic fund house requested the industry body to ensure that the enablers of exchange trading do not add a burden of excessive costs to mutual fund schemes.
“These costs are eventually borne by our investors. AMFI should ensure that the costs being charged by NSE, BSE, brokers, NSDL, CDSL, Karvy, CAMS et al, are all negotiated with the spirit of what Sebi is trying to do, that is to ensure wider reach to investors at a lower cost,” the official added.
