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Sebi drafts disclosure norms for mutual fund trading on NSE

NetScribes/Salil Panchal

In a first of its kind development, the National Stock Exchange has tied up with a mutual fund - Zurich India Mutual Fund - to market and distribute five of its mutual fund schemes. These are open-ended funds that are normally sold by the fund company or its agents.

Investors will now be able to use the NSE network to buy and sell mutual fund units in addition to trading in shares.

Given the novelty of the exercise, the Securities and Exchange Board of India has introduced fresh disclosure norms to ensure absolute transparency and investor protection.

Sebi has sought disclosures from the NSE brokers to re-establish the 'know-your-client' norm. The broker in this case will have to disclose how the entire scheme operates and how the payment system differs from a normal client-agent relationship.

The broker will also have to mandatorily provide an offer document to the client, prior to any purchase of units. An application form, providing a commentary on the mutual fund, its features and risk factors will be distributed by the broker to his client.

The Sebi disclosures are being introduced so that the broking community becomes familiar with the new concept. This is also the preliminary step towards the introduction of an online financial trading system where the Indian broker not only provides online trading but also online selling of mutual fund products.

"The entire procedure is being outlined so that investors who are not familiar with the system of trading through a broker in the secondary market, and yet keen to purchase mutual fund units, know how the new system works,'' said J R Varma, senior Sebi director in charge of risk management.

Varma said that the online trading programme once introduced in the Indian markets would eliminate risks and ensure that a streamlined payment interface is maintained. The NSE trading system, which provides for an electronic information and payment system also provides for a security flow system.

As part of the tie-up, Zurich India Mutual Fund (ZIMF) will deal with NSE brokers to market and distribute five of their funds. Located in 385 cities across India, these registered brokers will facilitate the sale/repurchase of ZIMF units to their clients. The schemes cleared for trading by NSE include the Zurich India Top 200 Fund, Zurich India Equity Fund, Zurich India Capital Builder Fund, Zurich India Tax Saver Fund and the Zurich India Prudence Fund.

Zurich MF will commence talking to these brokers now seeking to tie-up with some of them. The mutual fund on its part will continue to deal with its existing network of 700 distributors.

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