In conventional way of investing in stock market, you can only make all the transactions through the broker who may act as per his convenience after taking your order. In the meanwhile (between your order placement and his execution) anything can happen and you may end up in losses due to the delay. Also in many places, particularly in rural areas and small towns, the facility was simply available as it is mostly confined to the urban areas.
Similarly in the case of investing in mutual funds also there have been many difficulties. Though you need not go through a broker for investing in mutual funds, the mutual fund channels were also limited. The mutual funds have very limited offices/investor service centres again confined to urban areas. The registrars and transfer agents who provide services of investments and other services on behalf of the fund houses are also confined to the urban areas depriving the majority of the people in small towns and rural areas. These areas are covered by brokers and sub brokers who receive the paper applications for investments and redemptions from the investors and send them by post to the fund houses or registrars which take considerable time. These delays may also affect the investment decisions badly as explained below. If on a particular day, the market is trading very low or crashed to a lower level and you may like to invest at that market level and you have sent in your investment application that very day. But by the time the application reached the fund house for actual investment, if the market rises quickly to a higher level, you have lost the opportunity to buy at the low. Same thing can happen in reverse in the case of redemption. Even in urban areas, though the investor service centres and brokers are available, you still need to fill up the application forms, attach the drafts/cheques etc and hand them over to the fund house, transfer agent or the broker who may take his own time in delivering to the fund house. Over and above, you would have to pay extra charges for the brokers. Thus, we may lose in many occasions in case of conventional method of investing in mutual funds also.
Gone are the days when you call up the stock broker to buy or sell your shares. The advances in technology and availability of internet facility virtually everywhere made the investing online very easy just by a few clicks of the mouse and reachable for many. All that you need are your online banking account. Then the online trading account provider provides you the demat account and trading account duly linking your bank account. In India, there are many such service providers. The most prominent are ICICI DIRECT, and Share khan, etc.
Once you have the online trading account with its username and password, you can now buy or sell the shares or mutual funds at any time in real time from comfort of your PC/laptop. Apart from trading of the shares and mutual funds, you can also make investments in many other small savings like PPF, Post Office savings etc with ease. The moment you purchase any investment, the order is placed and the money is debited from your bank account. Similarly, when you sell the share or mutual fund units, the proceeds of the sale or redemption will be credited to your linked bank account as per the stipulated time frame. No cheques. No cash. Everything is an online transaction. The online trading also provides the portfolio statement of the investments updated with current prices to give a clear picture of the total value of investments at any time without having to calculate the total value separately. Not only that, some firms provide facilities of triggers to cause some action (sell or buy) when the price reaches a particular threshold value set by you.
All these facilities come for a small fee which is much less than a brokerage fee normally levied by the other brokers and charges are also transparent.
In case of ICICI DIRECT, for mutual funds, the entry loads are much lower than the 2.25% being charged by the brokers. Moreover, if the value of your investments is more than INR 800,000, there will be no entry loads or fees for your investments. It is absolutely free. ICICI Direct is providing facility of transactions with majority of the fund houses from one platform. You need not deal with many agencies and no need to fill up the forms and signatures. You can perform all the transactions like purchase, redeem, switch, SIP, SWP, and STP etc conveniently. If you have units of mutual funds in normal mode, you can also transfer in those units into the online account by a simple procedure.
Apart from these services, individual fund houses and their registrars and transfer agents also provide online investing facility for the investors. This facility is also free of charge and can save a lot of money in the form of entry loads. However, for this, one has to have separate online investment facility with each of the fund house or transfer agent with different usernames and passwords making the process a bit cumbersome.
Overall, online investing is definitely a better, cheap, and convenient way for managing the investments.