The Association of Mutual Funds in India (AMFI), on August 31, 2023, issued guidelines regarding Category 1 Execution Only Platforms (EOPs). The guidelines are related to the eligibility criteria for entities seeking EOP 1 registration from AMFI and safeguards for investors.
An Execution Only Platform (EOP) is any digital or online platform that facilitates transactions in direct mutual fund schemes, including subscriptions, redemptions, and switches. These platforms provide a seamless way for investors to access mutual funds without a demat account.
Investors can either go directly to the fund houses' platforms for subscribing to direct plans or use platforms like MF Central and MF Utility, run by Registrar and Transfer Agents (RTAs) and AMFI, respectively. In MF Central and MF Utility, you can view all your MF folios, just like you can with a demat account. You can invest in multiple funds through these platforms, which act as aggregators.
The guidelines state that MF Central and MF Utility, which provide services similar to Category 1 EOPs, should also register as EOPs.
Securities and Exchanges Board of India (Sebi) has categorised EOPs into two categories.
Category 1 EOPs: These platforms must register with AMFI, the industry body for mutual funds. Category 1 EOPs serve as agents of asset management companies (AMCs) and integrate their systems with AMCs and authorised Registrar and Transfer Agents (RTAs) authorised by AMCs. Category 1 EOPs may act as an aggregator of the transactions in direct plans of schemes of mutual funds and provide services to investors or other intermediaries.
They can levy a flat transaction fee, which would be borne by AMCs, within the upper limit as specified by AMFI.
Category 2 EOPs: These platforms are required to register as stockbrokers with Sebi and operate as agents of investors. They can provide services directly to investors but cannot aggregate transactions in direct plans of mutual funds.
The new guidelines are for Category 1 EOPs, who can act as aggregators through which investors can invest in multiple funds.
Eligibility: Any body-corporate that has the necessary technological infrastructure and the capability to provide a digital technology platform to facilitate online transactions in mutual funds may apply for registration as Category-1 EOP, provided such an entity is not registered (or does not intend to get registered) as Category 2 EOP with any stock exchange.
KYC & Onboarding Process: Category 1 EOPs must ensure investors complete Know Your Customer (KYC) requirements before onboarding them. Investors' bank account details should also be collected, including the bank name, CBS account number, and IFSC. If an investor hasn't completed KYC, the EOP should guide them in the digital KYC process.
No Advertisements: The EOPs shall not display any advertisement regarding any Mutual Fund scheme on their platforms, nor display any proxy/surrogate/common brand-related ads on their platforms. As they get transaction fees from AMCs, this guideline will enhance transparency.
Investor Grievance Redressal Mechanism: EOPs should establish a robust complaint redressal mechanism, ensuring that investor grievances are addressed efficiently. They should hire qualified/dedicated resources and impart adequate training for better handling and satisfactory closures of complaints.
Timely Execution of Orders: An EOP shall execute the investors' orders for transactions in mutual fund units immediately upon the investor placing the order and notify the investor about the successful execution or failure thereof for any reason. Transaction data must be sent to the respective RTAs immediately upon execution.
Data Privacy: EOPs are strictly prohibited from misusing or sharing investor personal data or investment details without explicit written consent obtained electronically.
Proper Disclosures: They must disclose their role as agents of AMCs to investors, avoiding conflicts of interest. As they collect transaction fees from investors, the disclosures become more critical.
Advisory Services: Category 1 EOPs cannot provide advisory services to clients, with Sebi clearly demarcating their role from that of advisors like RIAs.
