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FAQs: Buying mutual funds online

Mutual fund investors seem to be having a good time in recent days. First, the market regulator securities and exchange board of India, Sebi, abolished entry loads while buying mutual funds. And now investors will be able to buy and sell mutual funds online.

It is early days yet and a lot of investors are confused as to how they can go about buying and selling MFs online. Here are some answers to the frequently asked questions on the matter:

Is it possible to buy mutual funds online?

It was always possible. Earlier you had to go to each fund house to buy that particular fund, now you can go to a share broker and buy it.

Is it the only way to buy mutual funds online?

No. There are various ways. There are some exclusive online services, or you can buy from a fund house directly. Cams, Amfi, Karvy, and some banks are all trying to set up their own payment gateways for you to buy mutual funds online. Nothing launched as yet.

How can I buy from a share broker?

You need to have a brokerage account, a demat account, and of course a bank account. Hopefully you will not have to do a KYC (know your client) because it is assumed that it has already been done by the demat service provider. If you do not have a brokerage account and a demat account, you will have to open one.

Which schemes can I buy under the new scheme?

You are allowed to buy schemes that are listed. All funds may not list all schemes for this platform. However all equity schemes, a few balanced schemes and surely all liquid schemes will be listed.

The author is a financial trainer. Read his blog at www.subramoney.com.

I live in a metro. Should I opt for this system?

No. You may find it easier to deal with a bank (with zero charges) or a friendly financial advisor who can do it more efficiently.

For whom is this option worth taking?

For those who are living in remote places without banking facilities, IFA reach, AMC offices and who get the NAV (net asset value) with a lag. Typically if you are in an upcountry location and run the risk of an agent whom you do not like (or trust) too much, this is a good option.

Is the process simple?

It depends on you. If you are comfortable going to the Internet, computers, online banking then this is a good option. If you are a 'hard copy' kind of a person you still have the choice of going to your IFA.

Will my NAV vary during the day?

No. This is not a trading platform, just a data aggregator platform. All the orders are consolidated and sent to the fund house. The cut off of 3 pm. remains. So if your order gets executed after 3 pm, you will get only the next day's NAV. Any order placed before the cut-off time of 3 pm will have same NAV that is declared later in the day. There will be no fluctuation during the day.

When are the units likely to be credited to my account?

As the trades are guaranteed you should be able to get the units the next working day. However to be on the safe side you should expect T+2 (the day on which you buy plus two working days) as the settlement time and seeing the credit in your account.

Whom do I pay?

Normally when you buy units of a mutual fund you make the cheque in the name of the fund scheme. However here you will give the cheque favouring the broker who will aggregate the money collected from various investors and settle with the fund house. You will be allotted units only after the broker's cheque is realised. The settlement is likely to happen through the clearing system. You have no risk of units not being allotted -- the trades are guaranteed.

If I have demat account with CDSL (Central Depository Services Ltd.) can I buy and sell on the NSE?

No. To be able to deal with the NSE you need to have a demat account with NSDL (National Securities Depository Ltd.), a brokerage account with a NSE member, as a pre-requisite for dealing with the NSE. However the BSE has also launched its platform so you can deal with a BSE member for your transactions.

Is it cheaper to deal with a broker or an agent?

It depends on your agent!

Let us look at what it will cost you to trade through a broker. It will cost you brokerage (at least 50 basis points + NSE charges (currently nil) + dematting charges (for old units) and some transaction charge by the DP (depository participant) depending on the scheme that you operate. Surely you will pay demat charges on a continuous basis while holding the units.

When you sell you will pay a fee to the demat service provider. So it should be cheaper to deal through an agent. However the risk of the agent running away with the cheque or using the cheque with somebody else's application are all eliminated.