The Securities and Exchange Board of India (Sebi) has asked mutual fund (MF) Registrar and Transfer Agents (RTAs) to come up with a transaction platform, potentially disrupting a divided ecosystem but also bringing simplicity to investors. The deadline is 31 December.
How can you currently invest in MFs?
At present, mutual fund investors can go through a distributor. These can be online distribution websites or banks with a local branch network, national distribution firms or local independent distributors. Distributors charge commissions up to 0.5-1% depending on the type of fund. Or you can go through a fintech platform, many of which are free. Such platforms monetize their offerings by cross-selling other products like digital gold. Or you can go through mutual fund utilities, a company owned and funded by mutual fund houses and free of cost for investors.
What has the regulator proposed?
Sebi has proposed a common transaction platform, created by RTAs for purchase and redemption of mutual funds. It will also process non-financial transactions such as change in email address or phone number. It will supply holding statements and transaction statements to mutual fund investors, essentially becoming a one-stop solution for all mutual fund-related needs (except for financial advice). The platform will be free of cost for all investors. However, RTAs—Computer Age Management Services Ltd and KFin Technologies Pvt. Ltd—can sell ad space.
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What about cybersecurity concerns?
Having all the data in a single place is a major risk for investors. However, Sebi has mandated the platform to adopt the cyber security and cyber resilience framework specified by Sebi for market infrastructure institutions such as exchanges, depositories and clearing corporations, and qualified RTAs. The RTAs behind the platform will be responsible for data security.
Will intermediaries become redundant?
Yes, if the platform is able to provide a smooth transaction. At present, mutual fund transaction services are provided by distributors and fintech platforms at the front end. These entities rely on stock exchange platforms such as BSE Star, NSE, and the mutual fund industry-owned Mutual Fund Utilities at the back end. The new platform is meant to be a one-stop shop, meaning both front and back ends can be disrupted. But unless you are a DIY investor, you will still need advice from distributors or Sebi-registered investment advisers.
What are the possible pitfalls?
Several major questions have remained unanswered. It is unclear why the regulator did not involve Mutual Fund Utilities, which is already an industry-funded platform. It is unclear whether the financial incentives will be large enough to compensate the RTAs who are tasked with creating this platform. The RTAs may create it as a ‘check box’ exercise to comply with Sebi rules without putting in the attention to detail that a consumer-facing website requires.
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