Many of you would have heard of the story of a camel which came to a man in the desert and said ‘Can I keep just my face inside the tent…it is very cold outside’. As you can guess, slowly the camel was in and the man was out.

In a similar story the mutual fund regulator (regulators speak the language of the dominant player) is now creating business for brokers and demat service providers like banks.

The first step towards increasing business for brokers was to say that mutual funds have to list the units …or at least give the customers an option of holding the units in demat form.

We have spent enough energy (at least I have) – and Srikanth of fundsindia.com will agree that holding units in demat form is of no use to the end user!

I am happy holding my units in paper form – and keep my portfolio in free websites like www.myiris.com, www.valueresearchonline.com or www.moneycontrol.com. In fact I like the fact that my portfolio is analysed – and I know how my portfolio is split market cap wise and industry wise. No demat service provider does all this for me, and that too for free. Why the hell should I hold my units in demat form beats me.

So suddenly there is a SEBI circular saying…’from 1st October…fund houses should give an option to hold in demat form….’. In a couple of years they may say ‘It is compulsory ….to hold units in demat form’.

Of course SEBI will not want this – Sucheta will suddenly ask SEBI to give her the real number of unit holders in India (cdsl + ndsl – common holders, sorted PAN numberwise)….and the sheepish answer would be 125, 782 instead of ‘about 1 crore unit holders’ as is being flouted now…

This article has somebody saying ‘the transferability of schemes becomes possible….’. Nonsense. In case of a mutual fund, the units are NOT TRANSFERABLE. In case I wish to transfer it to my mother, I have to surrender it and my mother has to buy it from the same fund house – as there is no entry load it does not matter. Earlier I would have incurred an entry load of 2%  for doing the transaction.

Why this demat is being pushed I have no clear idea. However hard I think, I cannot see a legitimate or sensible reason either. For the end investor it increases costs – any way with 84 mutual funds (I believe there are many waiting in the pipleline!), falling brokerage income for demat service providers and brokers….I can only speculate that regulators do not always work in the interest of the investor.

read on

http://economictimes.indiatimes.com/personal-finance/mutual-funds/mf-news/give-investors-option-to-hold-units-in-demat-accout-sebi-to-mfs/articleshow/8444710.cms

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  1. Probably SEBI has in mind those ‘less sophisticated investors’ who do not do ONLINE transactions with brokers/AMCs, still hold accounts (SOA) in paper form and pay to the AMCs through cheques. For them, switching over to ‘paperless DEMAT, will be beneficial, albeit with some additional cost.

  2. Subra,
    Again you hit the nail. The benefit to the common investor – plank is again being flaunted around, for this . Who is this common investor ? Mutual Funds are still to strike a chord in the ‘ common people’. The gradual abolution of the entry load ( as in UK) viz-a-viz , the revolutinary changes ( as in stoppage of entry load at one single go, here ), is more acceptable. Financial literacy is zilch in our land and fancy degree and education and degree does not make one financially savvy. This is again the jungle law – the mighty prevails ……………..

  3. Well articulated thoughts. Would it be possible for you to take this to the attention of the regulatory authorities and industry body?

    We’ve discussed sufficiently in the past about the sanctity of demating something which is already in demat form.

    Why regulator is giving a thrust continuously in this direction?
    Instead if they provide a common account statement (as committed earlier), wouldn’t it serve the required purpose?

    A common account statement and an online platform to advisors would ensure more reach and reduce the expenses.

    In what way this move is beneficial to investors? Only it may benefit stock exchanges, depositories and brokers.

    What is the way forward for IFAs? Do they have to align with a stock broker in future?

    Would it be possible to maintain their independent working under a stock broker? How to align the interest of a stock broker with that of a client and an advisor? Would SEBI provide any mechanism for the same?

    Would advisors be asked to keep buying and selling funds depending on the NAV movement? The more we trade, the merrier for all, except the poor clients.

    Even the most optimistic estimate suggests that are around 8 million equity investors in the country.

    Instead of providing level playing field, increasing competition and penetration, how these kind of moves would benefit investors?

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