SEBI said the framework aims to promote mutual fund penetration and ensure adequate investor protection and grievance redress mechanism. SEBI has proposed additional requirements related to cybersecurity as required by stock exchanges and AMFI in EOPs due to the digital nature of business. The measure will affect investment platforms such as Zerodha, Groww and Paytm Money, which offer direct mutual fund plan.
SEBI Proposes Framework
The Securities and Exchange Board of India SEBI has proposed a regulatory framework for investment technology players offering execution only services on direct plans offered by mutual fund.
The market regulator has sought public comment on the consultation document until August 12. Currently, users can route their investments through a direct plan or a regular plan, which differ in spending ratios and the requirement of a dealer.
The measure may require platforms, such as Zerodha, Groww, Paytm Money, to register as intermediaries to sell direct mutual fund plans. There is currently no framework in place to allow these platforms to provide execution-only services on direct plans of mutual fund MF scheme & to obtain data feeds regarding such transactions.
To promote the penetration of MFs and ensure that ease of investment is accompanied by adequate investor protection and grievance redress mechanism, a framework for the operation of these platforms can be the springboard towards empowering investors with the power of technology coupled with the ability to invest directly in MF schemes, SEBI said in a consultation document.
The draft framework has suggested three separate frameworks to regulate entities that wish to undertake run-only services in direct schemes. The document suggested that such entities may be mandated to act as registered brokers or registered players with the Association of Mutual Fund in India AMFI or as a limited purpose membership company on stock exchanges.
The consultation document also said that execution-only providers EOP may be allowed to provide financial services, such as the purchase of mutual fund units, as well as non financial services, such as changing the identification of email and contact number.
SEBI has proposed that these platform be subject to additional cybersecurity requirements under the rules set by AMFI and stock exchanges. It has also invited additional cybersecurity related comments from the public in formulating the policy.
Highlighting the contours of the framework, the document also noted that such companies may or may not be permitted to carry out other activities, adding that EOP may be required to maintain an arm length relationship between their activities as EOP & other activities. activities. Essentially, these players could be mandated to ensure client level segregation with respect to their activities.
The minimum net worth should be prescribed in such a way that it is not prohibitively high to deter serious small players or be anti-competitive, the consultation document said.
It also provides that companies establish a specific complaint redress mechanism according to the adopted framework.
SEBI, in its document, said that the mutual fund industry has multiplied in the last decade, adding that the industry had assets under management AUM worth INR 38 Lakh Cr at the end of April 2022. The regulator of the The market also noted that AUM routed through mutual fund schemes direct plans stood at INR 16.94 Lakh crore at the end of April 2022, with the rest routed through regular plans.
The Indian investment market stood at $6.4 billion in 2021 and is projected to skyrocket to $14.3 billion by 2025, growing at a compound annual growth rate (CAGR) of 22, 4 %.