SEBI to introduce regulatory framework for ‘execution only platforms’ for direct plans of mutual fund schemes

The scheme would be open for business activities from the second business day after publication of results of voting,said SEBI
| Photo Credit: Reuters

SEBI on Tuesday said it will introduce a regulatory framework for “Execution Only Platforms” for direct plans of mutual fund schemes in a bid to further promote the penetration of such instruments as an investment vehicle.

A number of entities, including investment advisers (IAs) and stock brokers, offer execution services like purchase and redemption of direct plans of mutual fund schemes through the digital mode.

At present, there is no regulatory framework in place to facilitate the provision of such “execution only services” in direct plans of mutual fund schemes, independent of the regulatory requirements applicable to IAs and stock brokers, Sebi said in a statement issued after its board meeting.

The move would add convenience to investors in making investments through Execution Only Platforms (EOPs) and would help in ease of doing business for the platforms by mandating only such appropriate regulatory compliances as is required for the EOP activity.

Under the mechanism, an entity desirous of providing execution-only services in direct plans of mutual funds may be granted registration under either of the two categories — category 1 EOP as an agent of asset management companies registered with industry body Association of Mutual Funds in India (AMFI) or category 2 EOP as an agent of investor, registered as a stock broker.

The detailed framework and the modalities of implementation of the same, nature of services that may be offered by the EOPs, cyber security requirements, pricing of services, grievance redressal mechanisms, among others, would be notified through circulars, Sebi said.

The 43-player mutual fund industry has seen tremendous growth in the past decade and currently, the industry has Asset Under Management (AUM) worth ₹40 lakh crore. As on April 30, 2022, AUM routed through direct plans of MF schemes stood at ₹16.94 lakh crore.