Digital platforms such as Zerodha and Paytm Money that allow investors to buy, redeem or switch units in direct plans of mutual funds will now have to comply with the new norms.
Market regulator SEBI has followed last year’s consultation paper setting out a detailed regulatory framework on Execution Only Platforms (EOP) with final guidelines.
One of the restrictions imposed on these platforms is that such EOPs cannot sell regular plans of mutual funds on their website. Another restriction is that these EOPs cannot advertise specific mutual funds or mutual fund schemes on their platform.
Note that SEBI-
Online platforms run by registered investment advisors will not be covered under this new framework.
Will charge fees from AMC
SEBI has divided such EOPs into two categories. Category 1 EOPs will need to be registered with the Association of Mutual Funds in India (AMFI) and will collect fees directly from Asset Management Companies (AMCs). These entities will have to enter into an agreement with the AMC.
Whereas, Category 2 EOP will be registered with SEBI as a stock broker and will charge fees from investors. Existing platforms will be required to register under any one of the categories of EOP by September 1, 2023.
If we talk about fees, then Category 1 EOP can charge a flat fee from Asset Management Companies, which will not be based on the quantum of trade. However, Category 2 EOPs will charge a similar fee from investors. The fee structure will be nominal and will be decided by AMFI and the Stock Exchange.
SEBI has also asked EOPs to stay away from advertisements of specific mutual funds. At present, many digital platforms selling mutual funds are running advertisements of many funds and fund houses.
