In a circular dated 26 February, Securities and Exchange Board of India (SEBI) has directed stock exchanges, clearing corporations and depositories to set up an infrastructure that will allow investors to directly buy and sell mutual funds from exchanges.
Once the change is accommodated, investors will be able to buy and sell direct plans of mutual funds from stock exchanges without having to purchase them with the assistance of distributors or Registered Investment Advisors (RIAs) or stockbrokers.
Direct mutual fund plans do not have distributor commission and were introduced by SEBI in 2013.
The exchanges are expected to offer a window on their websites to facilitate the sale and purchase.
At present, investors can buy direct plans of mutual funds through MFU (Mutual Fund Utility), websites of asset management companies (AMCs) and fintech platforms like Paytm Money or Zerodha Coin (which are RIAs).
MFU is an aggregation platform owned collectively by several AMCs and launched by the Association of Mutual Funds of India (AMFI) in 2015.
There were stock exchange platforms- BSE STAR MF (BSE Ltd) and NMF II- that offered direct plans but one can only invest in them through SEBI-registered RIAs. A link is sent to the investor via e-mail to complete the transaction.
The latest change will allow investors to directly buy these plans from exchanges without the RIAs like they would on the MFU platform.
CAMS, a mutual fund transfer agency for AMCs in India, also allow investors to invest in direct mutual fund plans without any intermediary, distributor or RIA.
The advantage of direct investment is the longer transaction time. As per regulations, one can invest in an equity or debt fund up to 3 pm to be eligible for the same day's net asset value (NAV). If its a liquid fund, the cut-off time is 1:30 pm to be eligible for previous day's NAV.
However, private firms like Zerodha, who have to route their transactions through the exchanges, set their cut-off times an hour early to give them enough time to collect orders and connect with the exchanges, who then send them to the RTA- a mutual fund's back office.
If bought from the exchanges, the official cut-off times will apply as exchanges directly deal with the RTA.
The choice of the platform will now depend on the service of these exchanges as private players like Zerodha and Groww allow investment in direct plans of mutual funds at zero fees and are convenient.