MANDATORY DEMAT ACCOUNT FOR MUTUAL FUND -SEBI PROPOSAL

If the market regulator Securities and Exchange Board of India (Sebi) has its way, persons investing in mutual funds must have their own demat accounts. Sebi has sought suggestions on this issue from the Association of Mutual Funds in India (Amfi) which are to be provided by June 15.
This move, if implemented, is expected to give a fillip to the poor trading volumes (of mutual funds ) on both the exchanges. Buying and selling of mutual fund units started on the exchanges from November 2009.
The chief executive officer of a leading fund house, on condition of anonymity, said, “In May, Sebi had asked Amfi to give their recommendations on linking demat accounts for mutual funds. The issue was discussed in the Amfi meeting and they will reply to the regulator by the next week” he said. Currently there are over 1.01 crore demats accounts with NSDL.
According to sources, Sebi wants to implement this norm as early as possible, “Sebi intends that all the investors investing in mutual funds should have demat accounts while Amfi believes that investors should be given an option rather than make it compulsory.”

If demat account system is bought into the mutual fund industry, it will tweak its distribution system. “This will certainly have an impact on the distributors who sell mutual funds. Earlier, we have also seen that after the regulator banned entry load from August last year, many distributors stopped selling mutual funds,” said a member on condition of anonymity.
The BSE as well as the NSE allowed buying and selling mutual fund units through their existing infrastructure in 2009. However, it had not picked up after there were some technical difficulty faced by brokers. In May, the BSE had a total turnover of just Rs 59 lakhs while it was Rs 8.36 lakh for the NSE.
The committee of common online trading platform, constituted by Amfi, also suggested introduction of demat accounts for mutual funds. Some of the players feel that demats for MFs can be convenient and cost-saving since all the investment details will be given in one statement for an investor.

Source: www.simpltaxindia.org