At present, investors have the option of investing directly (direct plan) or through a distributor in a mutual fund scheme (regular plan).
Both direct and regular plans are part of the same scheme of a mutual fund but have different expense ratios.
Sebi said it has observed various investment advisers and stock brokers have been providing execution services in direct plans of mutual fund schemes through their digital platforms.
However, not all investors who are executing transactions in direct plans of mutual fund schemes through these platforms are availing of any advisory services. They are rather using the platform only to execute transactions in direct plans of mutual fund schemes.
With respect to such investors, investment advisers and stock brokers typically use their respective registration codes to have the visibility of data feeds of clients’ transactions executed through their platform.
The regulator said in the context of visibility of clients’ transaction data feeds, it has clarified that a stock broker and investment adviser can have visibility of clients’ direct plan transaction data feeds from RTAs (Registrar and Transfer Agents) for clients availing advisory, broking and portfolio management services by using their codes.
“The usage of investment adviser or stock broker registration code by platforms for visibility of the transactions brings convenience for investors by providing an overall overview of their investments. However, for the investors who are not their clients in terms of investment adviser and stock brokers regulations, the risk associated with such transactions cannot be overlooked as the non-clients do not have any recourse or protection available under any regulatory framework. Thus, there is a need to strike balance between the convenience and investor protection,” Sebi said in a discussion paper on Friday.
Currently, as per Sebi rules for onboarding an investor as client, investment advisers and stock brokers are required to enter into an agreement with the clients.
“The investors routing their mutual fund transactions through such platforms provided by investment advisers and stock brokers could find it inconvenient to execute agreements wherein many provisions of agreements and similar documents mandated for investment advisers and stock brokers may not be relevant for investors availing execution only services through them for transaction in mutual funds,” Sebi said.
