By Siddhant Mishra
The Securities and Exchange Board of India’s (Sebi’s) announcement on Monday that it would come out with a framework for execution-only platforms (EOPs) that sell mutual fund (MF) schemes directly to investors, will bring in more flexibility and protect investor interest, according to industry experts.
“It is a welcome step as it brings execution-only platforms within the purview of regulatory framework. It will enhance their credibility, and also allow Sebi or AMCs to initiate action if there is any wrongdoing. It would lead to higher compliance requirements by such EOPs. The exact impact can be accessed only after detailed guidelines are issued,” said Sudhir Bassi, Executive Director, Khaitan & Co.
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Sebi had, earlier this year, sought feedback on a proposed framework for such platforms, given the lack of any regulations governing such EOPs, and no mechanism to protect investors’ interests.
While some platforms operate as registered investment advisors (RIAs), others operate as stock brokers to provide such services.
“This regulation doesn’t change much for most players, but it brings in flexibility for the smaller players that aren’t RIAs or brokers, and who would want to sell such products without offering advisory services. Zerodha is registered as a broker and we don’t plan to start charging fees, so nothing changes for us,” said Bhuvanesh R, AVP (Business) at Zerodha.
“Earlier, these players didn’t have any other means except for being RIAs, but they can now just register with Amfi or Sebi, and compliance requirements — which were earlier quite a lot — will be eased to an extent,” he added.
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Agrees Gaurav Rastogi, founder of Kuvera, an online investing platform, saying: “The EOP model separates RIA-driven advice from the execution of direct plans, which was earlier tightly coupled. This simplifies and reduces the cost of audit and compliance for us.”
While experts agree that compliance requirements could be eased for such platforms, the purpose of direct plans could be defeated, according to others.
“Sebi’s move to allow direct plan platforms to charge fees to investors is a good move, because the RIA regulations were stringent and the cost of compliance was high. However, the option of AMCs paying these direct plan platforms, instead of investors, defeats the purpose of direct plans. The AMC payment is nothing but a commission paid in another form, which needs to be factored-in in the expense ratio, making direct plans not really direct,” said Subramanya S V, co-founder and chief executive of wealth tech platform Fisdom.