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Soon, there will be no free lunch for direct plan investors of online investment platforms like ET Money, Groww, Kuvera, Paytm Money and Zerodha.
In a board meeting held today, SEBI has approved introduction of new framework to facilitate execution only platforms (EOPs) for direct plans.
With this, all direct plan platforms will have to transform to a new model called EOP. Also, these platforms can either represent investors or AMC i.e. they will have to choose between becoming an agent of investors and AMCs, clarified SEBI.
SEBI said, “EOPs may be granted registration under either of the two categories - Category 1 EOP as an agent of AMCs, registered with AMFI or Category 2 EOP as an agent of Investor, registered as a stock broker.”
SEBI believes the introduction of EOP will offer convenience to investors to invest money in mutual funds, protect their interests and provide ease of doing business to EOPs.
While SEBI said that it will issue details EOP framework soon, here are some key proposals from the consultation paper floated earlier:
- 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 investors. 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
