In the last few years, the direct mutual fund platform has emerged as a very important method of buying mutual funds. Normally, fund buying had to go through a complex process. An investor had to go through a broker or directly approach an AMC to buy a mutual fund. Then the investor could either structure the investment as a lump-sum investment or as a regular systematic investment plan (SIP). The only challenge was that if the investor had investments in 6 different mutual fund AMCs, then there would be 6 different folios allocated and 6 different PINS to access the mutual fund account. That surely made the entire task complicated.
Enter, direct online mutual funds buying
This facility overcomes most of the difficulties of multiple folio numbers and PINS that investors needed to remember. How to buy direct mutual funds online? You need to start by opening a demat account with your broker. If you have a demat account with your broker, then that is good enough and you can use your existing demat account itself to hold these mutual funds. Like in the case of shares, each mutual fund scheme will be allocated a unique ISIN number and it is based on this ISIN number that your mutual fund holding will be identified and valued in your demat account. Like you buy shares on the NSE or BSE platform, these mutual funds can also be purchased on the NSE or the BSE platform and on the T+2 date, the MF units will automatically be credited to your demat. Similarly, you can even sell the mutual funds online and the fund units will be debited to your demat account and the proceeds credited to your bank account within 3 working days.
How is online mutual fund buying structured?
When you buy mutual funds online, it is only the front end interface and the holding method that changes. Instead of holding your mutual fund units in the form of a mutual fund statement, you are now holding it in your demat account. When you buy the mutual fund units through the online facility, the broker will first check that you have activated your mutual fund investment facility and are eligible to invest online in mutual funds with all the KYC completed. Once that check is completed, the order is processed and a confirmation is given. Subsequently, the processing of the order is still done by the mutual fund registrar like CAMS or Karvy. Once the additional units are created the registrar will directly send the units to your demat account. The reverse process will be at work when you sell units because your demat account will now get debited and the bank account gets credited.
Transacting comparison: AMC versus online broker versus independent Portal
If you choose to buy mutual funds online, there are three options available to you. You can either buy these units directly from the AMC website or from your regular broker or even through an Independent Portal like Funds India or Funds Supermart. The best online mutual fund investment platform India is all about the one that suits you the best. Let us look at the pros and cons. Firstly, the AMC website will permit you to transact online after the initial formalities are completed. AMCs do not charge you any extra fees for this service but you will have to maintain different PINS for different AMCs which become cumbersome. Secondly, going through your existing broker becomes simpler since you already have a relationship. You only need to check that your broker is allowing transacting of mutual funds online and whether the broker covers the particular AMC that you want to invest in. Transaction costs and demat charges will be added costs in this case. Thirdly, independent portals are specialized in mutual fund advice and research and can advise you thoroughly on a portfolio approach to mutual funds. But if the particular independent portal does not have a banking relationship with your banker, then this method is not possible for you.
Getting an idea of the BSE Mutual Fund Star platform
The Bombay Stock Exchange offers a MF Star platform to bring about a linkage between the funds and the intermediaries. As an individual investor, you cannot use the Star MF platform directly. But, if you are a SEBI registered broker or if you are a SEBI registered Independent Financial Advisor (IFA), then you can use the MF Star platform to execute orders on behalf of your clients. The advantage in the MF Star platform is that the broker or the IFA can get a quick and tabulated view of the mutual fund holdings of all their clients along with all the requisite analytics in one place!