Khota Paisa

Funds – Going The Online Way

Posted in General by khotapaisa on November 22, 2009

SEBI recently issued a circular stating thet funds will be allowed to be transacted electronically. This will allow the fund distributors to sell/redeem funds electronically. This is going to compliment the existing paperwork route available. So, how does it effect the common investor? Well, I guess it doesn’t add much value to the investor for the following reasons.

– Investors can buy/redeem fund online even now using services of various fund distributors like ICICI, ShareKhan etc. So for these investors, it doesn’t make much difference.

– Investors who go thru the paperwork (filling up the form & giving it to agent etc), would not see much value add for moving towards online transaction, specially those who don’t have existing demat account.

– Funds, unlike stocks, are not traded. They don’t need quick order execution and timing. So, the advanatges of transacting online (timing, hassle-free trading etc) don’t hold good for funds.

– Most of the investments in funds are done offline via distributors who also provide recommendation. This is in contrast to stocks which are traded based on tips & trends and are time-critical.

Having said that, the move to allow online fund transaction is not without merit. The biggest advantage of this move is the exposure of funds to a larger audience. With online fund transaction, brokers will also be able to sell/redeem funds. Since the people who invest in stocks are many times more than those who invest in funds, there is a large untapped audience for funds. This audience will now be reachable via stock brokers.
Overall the move, though not of much value to investors, will significantly help in broadening the investor base of funds. What needs to be seen is how the funds are received by traders (read the common stock investors)?

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