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There will be no free lunch for direct plan investors as platforms like Coin by Zerodha, ET Money, Kuvera, Groww and Paytm Money can no longer offer free services to investors.
SEBI has released a consultation paper in which it has proposed that direct plan investment platforms will have to decide if they represent investors or AMCs. That means, they have to become an agent of investors or an agent of AMCs.
While agents of investors will have to charge fees directly from investors, agents of AMCs can get commission in the form of transaction fees.
Here are some key proposals from the consultation paper:
- Barring stock exchanges and industry platforms like BSE Star MF, NSE NMF, MF Utilities and MF Central, all direct plan platforms will have to transform to a new model called Execution Only Platform (EOP)
- Direct plan platform can either represent investors or AMC i.e. they will have to choose between becoming an agent of investors and AMCs
- Platforms which opt to become an agent of investors can charge fee directly from their clients. SEBI may put a cap on this fee structure to make it reasonable for investors. On the other hand, platforms becoming agents of AMCs will be compensated by fund houses in lieu of transaction charges
- EOPs will have to maintain client level segregation and data sharing norms. Further, EOPs will have to maintain arm’s length distance between their activities like stock broking, mutual fund distribution and financial advisory
- EOPs will have to obtain business license from SEBI/stock exchange platforms if they represent investors or AMCs if they opt to become their agents
- EOPs may offer both financial and non-financial transaction. Financial transaction is facilitating purchase, redemption and switch in mutual funds while non-financial transaction involves doing KYC, incorporating changes in address or mobile number or so on
- Only corporates can become EOPs. Also, SEBI will introduce net worth requirement to ensure seriousness
- EOPs have to put in place robust cyber security norms to ensure safety of investors’ data
- EOPs will have to pay membership fee and follow guidelines specified by SEBI or stock exchange/AMFI. Also, they will have to meet fit and proper criteria to obtain EOP license
- EOPs will have to enter into agreement with clients if they become an agent of investor. Such an agreement will be signed between EOP and AMC, if EOP is an AMC’s agent
- EOPs may fall under SCORES or grievance redressal mechanism of AMFI/stock exchanges
SEBI has invited comments from all stakeholders till August 12, 2022. You may submit your views by email to eop@sebi.gov.in.
