Articles

Trading online in mutual fund units is not just smart, but saves you precious time. Prashant Mahesh & Nikhil Walavalkar list the benefits

WITH increased internet penetration, most financial transactions have gone online. Not only online transactions take less effort, they are also easy to organise. Furthermore, a search for a history of transactions is easily possible. These advantages and more are available when you buy mutual funds online.

RESEARCH AVAILABILITY

With several hundred mutual fund schemes on offer, which one to buy is a tough question. Most websites facilitating purchase of mutual funds online offer live research support, which means you can check out the topperforming funds in each category for different time periods. Comparisons can be done right up to the last NAV. In-house research teams also advise investors based on their individual investment horizons. This apart, there are ready-made asset allocation models you can use to construct your portfolio based on your age and risk appetite, and if you want to keep it simple, you can just mimic these model portfolios. You are also supported with various calculators.

PORTFOLIO TRACKER

Your portfolio is updated on a daily basis. Your entire mutual fund portfolio - be it in equity or debt - is consolidated and can be viewed on a single screen. "The customer's portfolio is updated daily with the latest NAV and he can also see our research recommendation against the schemes," says Vineet Arora, head (products and distribution), ICICI Securities. This helps the investor take decisions about his portfolio quickly and with minimum delay.

INTEGRATED PAPERLESS APPROACH

In the physical route, investors are burdened with paperwork and movement of paper. With online, they get the ease of transacting from any corner of the world at any point of time. You can just go online and invest. As internet banking spreads, the integration of your banking account with your mutual fund account also ensures seamless transactions and instant confirmation of transactions. "When you transact online, you do not have to wait for paper to know whether your cheque is cleared, or something is missing in your form," says Rajesh Krishnamoorthy, managing director, fundsupermart.com, a website where investors can transact in mutual funds.

INVEST IN SIP/SWP

Investing in a systematic investment plan or a systematic withdrawal plan is a pleasure when you do it online. In the case of an emergency, even at the last moment, one can stop a payment. In the physical mode, one would have to fill in forms and send it to registrar, which would require a minimum of two days. An added advantage is automatic reminders that inform you when your SIP gets over.

BUY THROUGH BROKERS

With stock brokers now being allowed to buy and sell mutual fund units through the exchange, you can also buy mutual funds by logging on to your trading account. However, it is yet to catch investors' fancy.

QUERIES

Some websites give you an opportunity to build communities where you can interact with other investors. The communities provide a platform to clarify doubts on investments in mutual funds, financial planning and such other related areas.

Why online mutual funds are catching on

Sebi abolished entry load on mutual funds in August 2009. Prior to this, whenever investors invested in an equity mutual fund, they were charged an entry load of 2.25%. This amount was deducted from the investor's investment by the asset management company (AMC) and passed on to the distributor as fees. However, this has changed after August 2009. Now, distributors can charge an advisory fee from investors for their services and earn a trail fee of 0.5% from the AMC. The reaction of distributors to this move has been mixed. While some distributors charge an advisory fee for their services, others do not. Hence, this has reduced distributor margins. For example, if a customer wants to invest Rs 10,000 in an equity fund today, a distributor may earn only Rs 50 as trail fees plus advisory fees charged if any, compared to Rs 225 which he earned as entry load plus the trail fees. Fall in margins makes industry players invariably look at boosting business volumes. As a result, more distributors are going online because it helps to reduce costs and maintain their margins. For example if a customer invests online, he does not interact with an advisor, nor does the advisor have to physically complete the transaction for the customer. This saves valuable manpower cost and other servicerelated costs for the distributor which makes up the biggest component of distribution cost.

Source : http://epaper.timesofindia.com/