Sebi opens doors for MF investment platforms to charge transaction fee

They can charge some money but commission won't be allowed: Chairman Madhavi Puri Buch

Online mutual fund (MF) investment platforms like Groww, Zerodha Coin and Paytm Money, which allow investments in direct MF schemes for free, will soon be able to charge their customers or the fund houses for executing transactions.

"They can charge some money but commission-like structure won't be allowed," Madhavi Puri Buch, chairperson of the Securities and Exchange Board of India (Sebi), said on Tuesday.

At present, none of these online investment platforms generate any revenue through the MF sales.

On Tuesday, Sebi announced the introduction of a regulatory framework, specifically for such investment platforms. The regulator said the framework will have an 'appropriate investor protection mechanism' and will make it easier for such MF investment platforms to operate.

The details on how much these platforms will charge and from whom, would come out at a later stage.

As per the regulation, these platforms will have to register as an execution only platform (EOP) to continue operations in the present form. At present, these platforms either operate as an investment advisor (IA) or a stock broker.
 

According to Sebi, these platforms will have two options. They can either register with the Association of Mutual Funds in India (Amfi) and become an agent of the asset management companies or register as a stock broker and become an agent of the investor.

"Under the approved framework, 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 said.

While Sebi has not disclosed further details, a consultation paper released earlier this year on the same regulation proposed that such platforms be allowed to charge either the customer or the fund house for every transaction executed on its platform.

"Fee  structure  for  EOPs  as an agent  of  AMC to be transaction based, a suitable cap can be prescribed on such fees while acting as an agent of investors," the regulator had proposed in the consultation paper.
 

Transaction charges on direct MF transactions will narrow the difference between the direct and regular plans. Investors of regular plans have to pay a small percentage of their investments as commission to their MF distributor every year, whereas direct plans have no such provision. This led to the popularity of online investment platforms as they offer only direct plans.