Wealth Academy

Quick & Easy Chapter Summaries

Chapter 3 - Fund Distribution and Sales Practices

Here are the key points you must remember in this chapter :


 » Traditionally, transactions in units of mutual fund schemes have been effected as:
o -New Fund offer: Investor submits the application for purchase along with cheque/demand draft to the AMC or authorised banker of AMC or a distributor or RTA
o -Post NFO transactions in open end schemes: sale or repurchase requests would be submitted to the AMC, distributor or RTA
o -Post NFO Transactions in closed end schemes: Investors would need to go to a stock exchange to sell or buy more units as schemes are listed on exchange
o -ETF: ETF combines features of both open end and closed end schemes
 » Dematerialisation has eliminated the need for unit certificates to be issued to the investor. Instead, an electronic record of the unit holding is maintained with the depository
 » Unit holders can hold their mutual fund units in either physical form or demat form.
 » The existing folio holders can now buy new units or redeem their units through the AMC website
 » For transacting on AMC website, the investor needs to establish physical contact with the AMC, distributor or RTA to sign forms for the first transaction. Future transactions
can happen over internet. However, some AMCs have eliminated the need of that too.
 » Payment for fresh purchases from AMC website can be made through payment gateway on the website (unit holder's application and money transfer are directly linked),
NEFT/RTGS or small value investments through credit cards
 » AMC website allows transaction in only its schemes
 » The investors can also transact in mutual fund schemes through the websites of distributors which allows the unit holders to transact in units of several AMCs, with whom the
distributor has tied up
 » Internet, smartphones and Wireless Access protocol are the modes of transacting in mutual fund units
 » The investor can trade online in stock exchanges by having an online trading account and a demat account. Having an internet enabled banking account makes the process
easier
 » Besides offering a platform for trading in listed units, BSE and NSE have also developed transaction engines for mutual funds
 » Transaction engines help stock brokers in managing mutual fund applications.
 » While transacting through transaction engines, the units/money are credited to the broker's pool account, from which the broker transfers to the investor's DP account/bank
account
 » In case of debt schemes, transactions for subscription of Rs.1 crore and above are not allowed in transaction engine
 » Since the stock exchange is only a facilitator, while AMC is the counter party for the investor's transactions, the transactions are not protected by the settlement guarantee
fund