Investor Friendly?

The so-called investor friendly steps actually spike the Investor.

Should you purchase Mutual Funds through your friendly broker?  Do you respond to the sweet mails by NSDL and others,  asking you to demat and get multifarious benefits?  Do you really have to demat your units?

Investors beware!  Many of these have been introduced in the name of  investor friendliness.  Now consider the facts. After it removed the entry loads, SEBI was in a hurry to migrate Mutual Funds to the stock market platform ostensibly to increase the penetration of Mutual funds. Be with me now…  The same SEBI which wanted the investors to benefit due to zero entry loads was championing the cause of stock brokers, who are charging on an average 0.5%, both on the buy and the sell transaction.  This move was audacious and exposed the hypocrisy. On one hand it was trying to dismantle the charges and on the other hand SEBI was quite fine if investors paid a brokerage on both the buy & sell transactions.  If 0.5% was a transaction fee, does it not make sense to retain that as the fee for a distributor in Mutual funds? Does it not expose it’s double standards and worse still – possible complicity?

Yet SEBI & their honchos were being talked about in reverential tones. The investor who was being cooked in the process, was blissfully unaware – who bought the story publicized by the media about the SEBI moves being “investor friendly”.  Media gave saturation coverage to the removal of entry loads and chose to ignore this basic anomaly. But this was not an anomaly. It was blatant siding with the stock brokers. Not that stock brokers wanted it – they are doing nothing about the Mutual Funds, which is reflected in the volumes in both BSE & NSE.

SEBI also mooted the idea of dematting MF units. There are no sense in dematting a statement ( as opposed to a certificate in Shares ). There is nothing to be gained except getting to see it as an entry on the screen. But the demat account has it’s costs, which can be between Rs.300-500 per annum.  Plus this whole exercise is unnecessary.  Imposing new costs on investors is hardly investor friendly, is it?

CAMS has an excellent, free service where one can get a comprehensive report of all investments done through CAMS & Karvy. This can be accessed by any investor and is based on their PAN & email id. CAMS also has a more detailed Active statement for investments coming under it.  In the light of this, demat services are just not required. It is a sham that it is being promoted as a great option. At one point it was rumoured that it will be made mandatory to demat MF units, which would have been disastrous.

Now, if the investor wants the units in demat form, they cannot apply through the normal application form. They cannot apply through the internet portal of the respective Mutual Funds too. They will have to go through the broker ( any pay the costs ) or will first have to get it in physical have to take the statement and go to the depository and comply with their procedures for dematting ( which imposes costs as it involves time and expenses ).  Once it makes it to the demat account, the listing will be alphabetical along with equities i.e Equities and MF schemes will come mixed up.  This is what you get for so much work. If you thought you will be able to trade your Equity schemes on the exchange, you are mistaken. You need to go to the respective AMCs only, for that. Then, what’s the big deal about holding it in demat form?

Now look at the other investor friendly steps that SEBI has brought in. Previously, investors in FMP/ QIP/ Monthly Interval Plans etc. could go to the AMCs to exit prematurely. There were exit loads applicable, but at least there was a way to access your money, if there was a dire necessity.  Now, SEBI has made it mandatory to list all these on the stock exchanges. Now, AMCs are no longer responsible for liquidity. They are a happy lot, obviously. This was ostensibly done to do away with sudden surge in people wanting to exit, like it happened in 2008. That could have been handled by imposing a higher exit load or by having a formula to calculate exits loads based on the number of investors who are trying to cash out at a particular point – higher the number of investors, higher the penalty.

Now investors in these schemes are stuck – they can sell only if there is another party which wants to buy. Needless to say that the market is just not there for this and investors are stuck.  Even if there is a counterparty, the discount they would be asking in the absence of a deep market, will impose a very deep penalty on the investor. It was much better for the investor to sell back to the AMCs with the exit load, as it existed previously.

All these have made monkeys out of investors – and they don’t even know it. They thought that SEBI was protecting their interests all the time.  I’m reminded of Animal farm now.