Digital platforms like Zerodha and Paytm Money which allow investors to buy, redeem, or switch units in direct plans of mutual funds now have to comply with a new set of rules. Market regulator SEBI has followed up on last year’s consultation paper setting out a detailed regulatory framework for Execution Only Platforms (EOPs) with final guidelines.
The guidelines deal with categorization of such platforms, who they can charge for commissions, for transactions, and certain restrictions on the activities they can carry out. One of these restrictions is that such EOPs cannot sell regular plans of mutual funds on their websites. Another restriction is that these EOPs cannot advertise specific mutual funds or mutual fund schemes on their platforms.
It is important to note that online platforms run by SEBI-registered investment advisors will not be covered under the new framework.
The market regulator has divided such EOPs in two categories. Category 1 EOPs would need to be registered with Association of Mutual Funds in India (AMFI) and will charge fees directly to the Asset Management companies (AMCs). These entities would need to enter into agreements with the AMCs. SEBI has asked AMFI to work on the modalities of the same.
On the other hand, Category 2 EOPs will be registered as a stock broker with SEBI and will charge fees to the investors. Existing platforms would need to get suitable registration under one of the categories of EOPs by September 1, 2023.
Speaking about the fees, Category 1 EOPs can charge a flat fee, which will not be based on the quantum of trade, to the AMCs. However, the category 2 EOPs will charge a flat fee to the investors. The fee structure will have to be nominal and will be decided by AMFI and stock exchange. SEBI has also directed that AMCs cannot charge the schemes for the fees paid to EOPs.
In line with the recent advertisement code for investment advisors, SEBI has also asked EOPs to stay away from advertisements of specific mutual funds. At the moment, many digital platforms selling mutual funds run advertisements of several funds and fund houses.
The discontinuation of usage of pool accounts for transactions in units of mutual funds would also be applicable to EOPs.
(Edited by : Keshav Singh Chundawat)
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