In a move that will benefit the investors, the Securities and Exchanges Board of India, SEBI has taken a decision to allow purchase of mutual funds directly from the stock exchanges instead of having to go through the distributors. Now mutual funds units can be bought and redeemed through the stock exchanges.
This would save some money for the investors since any Regular Plan mutual fund will include a small expense ratio which the fund managers will pay the distributors for facilitating the buying and redemption of the units invested in their funds.
The latest circular issued by SEBI dated February 26, 2020, states “it has been decided to allow investors to directly access infrastructure of the recognised stock exchanges to purchase and redeem mutual fund units directly from Mutual Fund/Asset Management Companies.”
SEBI has instructed the recognized stock exchanges, clearing corporations and depositories to make the changes necessary in their own respective byelaws and internal procedures to facilitate this change.
The SEBI circular makes reference to its earlier circulars in this regard, the ones in 2013, 2014 and 2016. The first time the SEBI Registered Investment Advisors or RIAs to purchase and redeem mutual fund units in the recognized stock exchanges from the Mutual Funds. This they have been doing on behalf of their investor clients.
Stock exchanges have also created their own infrastructure to aid the investments in mutual funds on its platform. BSE, for example, had launched STAR MF platform for IFAs (MFD Model) in 2014. Similarly, NSE too has an online platform NMF II. The RIAs have been able to handle practically all relevant transactions, like subscription, redemption, Systematic Investment Plan (SIP), Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP), Switch and other transactions of mutual fund units on these platforms.
These very same platforms can now be directly accessed by the investors to make their investments.