What is Mutual Fund Service System (MFSS)?
The Mutual Fund Service System (MFSS) is an online order collection platform that allows investors to place subscription (buy) and redemption (sell) orders for mutual funds through stock exchanges.
It is important to note that MFSS is not live trading of mutual funds like stocks. Instead, it is an order-routing mechanism where brokers collect investor orders and submit them to the exchange platform.
The system has been implemented by both major Indian stock exchanges:
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National Stock Exchange of India (NSE)
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Bombay Stock Exchange (BSE)
MFSS was introduced to make mutual fund transactions more convenient and integrated with existing trading accounts.
MFSS Eligibility Criteria for Investors
To use MFSS, investors must meet certain requirements.
Basic Requirements
An investor must have:
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A Demat account
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A trading account with a registered broker
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Signed the MFSS agreement with the broker
Investors Who Already Have a Demat Account
Existing Demat account holders simply need to sign additional MFSS terms and conditions with their broker to activate the facility.
Once activated, investors can start placing mutual fund orders through their broker’s trading platform.
How the MFSS System Works
The MFSS platform allows investors to transact in mutual funds in a way that feels similar to stock trading.
Key Features of MFSS
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Investors can buy or sell mutual funds through their trading account
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Orders can be placed between 9:00 AM and 3:00 PM on exchange working days
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All transactions are settled on T+1 basis (Trade Date + 1 working day)
Once an order is placed:
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The broker sends an order confirmation slip to the investor.
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This confirmation acts as official evidence of the transaction.
Payment and Settlement Process
The payment structure in MFSS is slightly different for purchase and redemption.
Subscription (Buying Mutual Funds)
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Payment is made through the broker’s clearing bank account.
Redemption (Selling Mutual Funds)
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Redemption proceeds are directly credited to the investor’s bank account.
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The payment is handled by the Registrar and Transfer Agent (RTA).
The payment may be processed via:
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Direct bank credit
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NEFT transfer
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Cheque
The payment method depends on the procedures followed by the respective Asset Management Company (AMC).
SIP, STP and SWP in MFSS
At present, the MFSS platform does not support the following systematic investment features:
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SIP (Systematic Investment Plan)
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STP (Systematic Transfer Plan)
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SWP (Systematic Withdrawal Plan)
MFSS mainly supports lump-sum purchase and redemption transactions.
Conversion of Existing Mutual Fund Units into Demat
Investors who already hold mutual fund units in physical or statement form can convert them into Demat format.
Steps to Convert Mutual Fund Units into Demat
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Collect the Conversion Request Form (CRF) from your broker.
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Fill the form and submit it along with the latest Statement of Account showing mutual fund holdings.
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Ensure that the name and holding pattern match exactly with the Demat account.
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Separate CRFs may be required for:
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Different folio numbers
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Free units
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Locked-in units
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Confirm that the mutual fund scheme is eligible for Demat conversion and has an ISIN.
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Some brokers may charge a small fee for converting units into Demat format.
Advantages of MFSS
Convenience
One of the biggest advantages of MFSS is portfolio consolidation.
Benefits include:
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All equity-related investments can be viewed in one place
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Easier monitoring of investments
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Simplified transaction process through the trading platform
Disadvantages of MFSS
Additional Costs
Transactions through MFSS may involve brokerage charges.
This can increase costs compared to investing directly through mutual fund platforms.
Currently:
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Many equity mutual funds have no entry or exit load
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Some brokers may offer zero brokerage for an initial promotional period
Investors should confirm applicable charges with their broker.
Asset Management Companies Available on MFSS
Several mutual fund companies offer schemes that can be transacted through MFSS.
Some of the participating AMCs include:
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Aditya Birla Sun Life Asset Management Company
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DSP BlackRock Investment Managers
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Franklin Templeton Asset Management India
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HDFC Asset Management Company
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ICICI Prudential Asset Management Company
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Kotak Mahindra Asset Management Company
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SBI Funds Management
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Tata Asset Management
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UTI Asset Management Company
Investors should refer to the latest exchange circulars for the updated list of eligible schemes.
Conclusion
The Mutual Fund Service System (MFSS) offers a convenient way for investors to buy and sell mutual funds through stock exchanges using their existing Demat and trading accounts.
While it simplifies monitoring and execution of transactions, investors should also consider brokerage costs and the lack of SIP features before choosing this route.
For investors who prefer integrated portfolio management through their broker, MFSS can be a useful facility.
