Direct mutual fund platforms will now be able to charge a transaction fee!
SEBI's latest announcement is likely to allow direct mutual fund platforms to levy transaction fees. Continue reading to learn more.
The ability to charge their clients or the fund houses for processing transactions will soon be available to online mutual fund investment platforms like Groww, Zerodha's Coin, Paytm Money, etc. which now provide free investing in direct plans.
On Tuesday, the Securities and Exchange Board of India (SEBI) Chairman Madhavi Puri Buch remarked, "They can charge some money but commission-like structure won't be allowed.”
At the moment, neither of these online investment platforms earns any money by offering direct mutual fund plans.
Furthermore, SEBI announced the establishment of a regulatory framework designed exclusively for such investment platforms. The framework would include an acceptable investor protection mechanism, according to the regulator, and will make it simpler for such mutual fund investing platforms to function. The specifics of how much these sites will charge and from whom will be revealed at a later date.
To continue operations in their current form, these platforms must register as execution-only platform (EOP), according to the rule. At the moment, these platforms act as either investment advisors (IA) or stock brokers.
These platforms would have two possibilities, according to SEBI. Either they may register as a stockbroker and work for the investor, or they can register with the Association of Mutual Funds in India (AMFI) and work for the Asset Management Companies (AMC).
While SEBI has not provided any more information, a consultation paper issued earlier this year on the same rule recommended that such platforms be permitted to charge either the client or the fund house for each transaction processed on its platform.
The gap between the direct and regular plans will get smaller when transaction fees are added to direct mutual fund transactions. Regular plan investors typically pay a modest proportion of their capital as a commission to their mutual fund distributors each year, whereas direct plan investors do not. Because they exclusively provide direct plans, online investing platforms have grown in popularity.