Investments in mutual funds have been on the rise in the last few years in India. The industry now has 2.39 crore unique investors, and individual investors held Rs 18.34 lakh crore in mutual funds as of June 2021. Institutional assets in mutual funds accounted for another Rs 15.77 lakh crore. Taking note of the rising investor interest in the sector, the Securities and Exchange Board of India (Sebi) now wants the registrar and transfer agents (RTA) to set up a common mutual fund transaction platform.
The market regulator says the move is to make it more convenient to the existing and future investors to transact and avail services while invested in mutual funds.
“RTAs shall implement standardised practices, system interoperability among themselves to jointly develop a common industry-wide platform that will deliver an integrated, harmonised, elevated experience to the investors across the industry. Asset Management Companies and depositories shall facilitate the RTAs for development of the proposed platform,” SEBI said.
The move is expected to usher in a big change in what is today a fragmented ecosystem. Currently, there are multiple ways to buy and sell a mutual fund. You could go to a mutual fund distributor, or a local bank branch, which offers these services. Distributors usually charge a commission of around 1 per cent.
In the last few years, several fintech platforms have emerged that allow mutual fund investments with or without any commissions. You could also go direct and buy a fund through an AMCs website, which will reduce your expense ratio. There is also something called a mutual fund utility, a transactional platform funded by mutual fund houses. There are two RTAs in the country – Karvy (KFinTech) and Computer Age Management Services (CAMS).
Sebi wants the RTAs to set up one common transactional platform, which will help investors access services for all mutual funds in an integrated manner.
“The aforesaid platform shall, inter alia in phases, enable a user-friendly interface for investors for execution of mutual fund transactions, viz., purchase, redemption, switch, etc., initiation and tracking of service requests, initiation and tracking of queries and complaints, access investment related reports, transactions reports, etc,” the regulator said.
Transacting in a mutual fund, doing simple tasks as updating bank acounts can be cumbersome. Some mutual funds are managed by KFinTech, others by CAMS. You will have to write to both separately to update the bank account or write directly to individual fund houses.
If this proposed platform can offer a seamless service, it could make transacting in mutual funds much easier and user friendly. “This a major initiative in enhancing investor experience to start with and in providing enhanced services for the entire ecosystem (distributors, digital platforms) as the project expands to cover all stakeholders. While elevating investor experience, the company believes that this will reduce duplication of efforts and risks for the ecosystem while taking digitisation of transactions to next level,” said CAMS.
People who still need help with their investments could approach registered financial advisers, others confident of investing on their own could transact smoothly on this platform.
“The proposal by SEBI to push for an integrated transaction and reporting services platform covering all AMCs in one platform is a strong signal that distribution or transaction-led offerings will eventually be commoditised. This is an industry-wide shift and is a great push by SEBI, if executed well, to fortify the fact that the future is all about the advisory-led model when it comes to servicing the end retail investors,” said Ujjwal Jain, CEO and founder of WealthDesk, an investment technology platform.
Even at the backend, things could become much smoother for distributors and advisers, which have to typically rely on platforms like BSE Star MF and NSE’s NMF or the mutual fund utility.
“SEBI’s efforts to standardise messaging and services will go a long way in making all mutual fund services to all distributors, including the ones coming through stock exchanges and other platforms, which is currently not possible,” said a BSE spokesperson.
SEBI says AMCs and depositories shall facilitate and RTAs shall make the platform operational in phases and fully by December 31.
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In recent times, cyber security risks have increased. Not taking a chance, SEBI wants the platform to adopt cyber security and cyber resilience framework specified by the regulator to market infrastructure institutions such as stock exchanges, depositories and clearing corporations.
The RTAs will be responsible for compliance with all the applicable regulations including system audit and cyber security audit.
Sreekanth Nadella, CEO of KFin Technologies, said the inter-operable platform is conceptualised to go live in three phases. The first phase will cover non-commercial transactions like service requests of investors and the phase two will see the launch of the mobility platform. The last phase covers commercial transactions and integration with ecosystem partners for several value-added services.
“Phase one is progressing at a brisk pace with a sizeable quantum of work completed,” added Nadella.
The platform will be free for investors, but participants can sell marketing space for the platform’s sustenance.
