Direct MF entities can charge AMCs up to Rs 2 for transactions: Amfi

Online platforms selling direct plans of mutual funds (MFs) can now charge asset management companies (AMCs) up to Rs 2 for every transaction, according to the guidelines issued by the Association of Mutual Funds in India (Amfi) for platforms registering under Category-I (Cat-I) of execution only platform (EOP) framework.
 

“The upper limit for transaction fees for Cat-I EOPs has been capped at Rs 2 per transaction in consultation with and guidance of the Securities and Exchange Board of India (Sebi),” the association stated in 

the guideline.

In addition to the transaction fee, AMCs can reimburse the payment gateway charges incurred by the platform. AMCs can also choose to pay out an additional 50 paise per transaction to new EOP players to encourage competition.
 

Sebi, which came out with separate regulations for platforms selling direct MF schemes in June, has given them two options — to register with Amfi (under EOP Cat-I) or with exchanges (under EOP Cat-II).

Under EOP-II, platforms can choose to charge investors. Stockbrokers, who offer MF investment services only to their broking clients, can skip the EOP registration.
 

The announcement on transaction charges brings the much-needed clarity to such platforms ahead of the end-November deadline for choosing between the two options.

However, the transaction charges might not be enough to sway larger players, many of whom have been operating their platforms under a stockbroking licence, from registering with Amfi.
 

The largest direct MF investment platform Groww, which is also a stockbroker, will continue with the same set-up and has no plans to charge customers as of now, said its senior executive.

FYERS, which also offers both stockbroking and MFs, is also set to continue operating its MF platform under the stock-broking licence.

“As a stockbroker, we do not need a separate registration as an EOP. We operate our EOP within our platform, which is integrated with the exchanges’ platforms. We comply with the stringent regulatory standards set by Sebi and exchanges, including those related to client registration, know-your-customer (KYC) requirements, order execution practices, and data confidentiality,” the company said.

One of the reasons to stick to the stockbroking set-up, say executives, is to ensure continuity in operations, given that their systems are now closely integrated with exchange platforms. Most larger MF investment platforms work with BSE StAR MF.

According to some players, the compensation being offered by Amfi is not lucrative enough.

“This does not even cover basic operational cost. A digital platform has to bear a lot of overheads like KYC costs, mandate costs, etc. Over and above these, platforms have to constantly invest in technology owing to regulatory requirements.

Considering other operational and sundry expenses, this amount is like a drop in the ocean,” says Mohit Gang, chief executive officer and co-founder of Moneyfront, a direct MF investment platform.
 

Some Clarity

• AMCs can reimburse the payment gateway charges incurred by the platform
   
• They can payout an additional Rs 0.5 per transaction to new EOPs to encourage competition
   
• Transaction charges may not sway larger players
   
• Most platforms operating under a stock broking licence
   
• Groww, the largest direct MF investment platform and a stock broker, has no plans to charge customers