Trading Mutual Funds via stock exchanges

The stock exchanges are in the process of  allowing mutual funds, to be bought or sold on the stock exchanges.         Here is an FAQ.

Q: What are the advantages of trading Mutual Funds on the exchange

A: Investors can now purchase MFs,  through the same mechanism,  that they use to trade equities.      Secondly,   many investors in Tier-II and Tier-III cities, do not have MF branches and hence have difficulty in transacting in various funds.   With the new platform,   MFs can reach out to a larger audience.      Thirdly,  the current settlement process,   is long and it can take over a week for the transaction to be recorded.             The new process,  requires,   that the settlement close in two working days.

Q: Which mutual funds are available on this platform?
A: Selected mutual funds from UTI and Birla Sun Life are currently available.     Various other firms such as Reliance,   HDFC, Tata, … are in talks to include their funds, on the new platform.

Q: My broker,   has always allowed me purchase or sell MFs.  How is this different?

A: Some brokers currently allow the purchase or sale of Mutual Funds, via their website.  However,  they are merely acting as pass-throughs, routing purchaser information to the appropriate mutual fund.       With the new exchange based trading system,   the MFs are held in your Demat account.

Q: How are MF units priced?  Do they vary throughout the trading day?

A: Any order placed prior to 3 PM,   shall be closed as of the closing NAV,  on that day.        MF Units are unlike ETFs and are not expected to have intra-day pricing changes.

Q: Is there a fee for buying/selling via the exchange?

A:  The NSE has indicated that they will not be charging a fee for the transaction.   However, the individual brokerage firms are free to charge.    Brokers may  institute a fee, ranging between 0.5 and 1%,   depending on the client and volume, if the market dynamics allow for additional fees.

Q: What about taxes?

A: The purchase / sale of Equity MFs, will be subject to Securities Transaction Tax (STT) (currently at 0.125%).       You must factor this tax, into your calculations.   The Debt and Liquid funds are not subject to STT.    All MFs, shall be subject to capital gains taxes as applicable (Units held for 12 months or less are liable to a tax at 15%,  while units held for more than 12 months are exempt from capital gains tax, provided, that the transfer of units, were subject to STT).