Market regulator Securities and Exchange Board of India (SEBI) has directed mutual fund asset management companies (AMCs) and mutual fund (MF) registrars and transfer agents (RTAs) to develop and implement an integrated MF transaction platform for investors. As per the SEBI circular
, the proposed platform would be a one-stop-shop for financial and non-financial MF transactions. This is an idea that dates back to the tenure of former SEBI chairman UK Sinha.
Many people responded to the news with some hilarious memes mocking the market regulator.
SEBI’s move has triggered a debate on whether there is actually a need of a new platform when Mutual Fund Utilities (MFU), a transaction aggregation portal with almost all those said features, already exists. The new platform will come at a huge cost and the cost will be borne by the AMCs which, in turn will come from the MF investors’ pockets.
MFU, which was started under the aegis of mutual fund industry body Association of Mutual Funds in India (AMFI), is a shared infrastructure of all AMCs in India. This was launched in order to reduce duplication, increase digital transactions and efficiency, offering financial and non-financial transaction and almost all similar features mentioned in this week’s SEBI circular.
The platform shows an investor's holdings across mutual funds. It allows one to purchase, redeem, switch, start a systematic investment plan (SIP) and request systematic transfer of funds (STP) of MF holdings. It also allows investors to add specific goals to each scheme in an investor's portfolio. It allows service requests as well.
Oblivious to this, SEBI wants to duplicate this all over again. In whose interest? Was SEBI totally unaware of the existing platforms and their available features when they made this announcement? Why else would one choose to build an entire elephant when the elephant exists and only some features, maybe the tail of the elephant, are missing?
Many investors, MF distributors, industry stakeholders and financial planners have openly criticised SEBI’s move. Questions are also being raised if AMFI had not informed SEBI about the existence of such a ready-made platform. After all, it is just a question of adding interoperability, ECAS, dividend reinvest and unclaimed to MFU and it would serve as the envisaged platform.
V Ramesh, the former managing director & chief executive officer (MD & CEO) of MF Utilities tweeted that SEBI was unaware of the MFU platform.
Several others also pointed out that the new platform is sheer duplication and is just not required. They highlighted how the existing MFU platform could have been used (by adding the missing 5% elements) and enabling a scalable tech solution to bring convenience to all stakeholders, including investors.
Ganesh Ram, who recently took over as the MD & CEO of MFU, has hailed the new planned RTA inter-operable platform as a positive move from the regulator which will benefit investors if implemented seamlessly by fixing the existing gaps, data availability, streamlining the current processes.
“The good news is that regulator is very keen to continue the success of interoperable model like KRA services which may help investors to fetch their data and get serviced from a centralised location. With this platform getting launched we don’t see any impact to existing players (MFU, BSE, NSE et al). Our view is that if the new so-called platform can offer the services via API to existing platforms, it would have a common level playing field…leaving investors to choose which platform they are comfortable with and have same experience across platforms,” Mr Ram said.
Mr Ram added “As per the information we got from the circular and from RTA (which was published in media) it seems this platform will start with service requests/non-financial transactions during phase one followed up with mobile app offering during phase 2 and the commercial transactions during phase 3. One important point to note is that there are different processes across AMCs for service requests/non-financial transactions based on AMCs’ risk profiling, internal processes, legal & compliance policies etc. Hence it is going to be interesting to see what kind service this platform offers. If it simplifies the processes and lives up to expectation of ‘ease of doing business’, it will be a blessing to investors.”
When asked if MFU already provides most of the features from SEBI’s circular, Mr Ram hesitatingly admitted that “MFU is already a readily available platform servicing investors covering 95% of all service requests which is specified in the circular. Once RTAs offer the APIs for the rest of the services, MFU will be a complete solution available for investors. Currently, MFU has APIs connected to each of the two RTAs but once this platform is built, we need to connect only to that to consume services. So its would be highly beneficial to MFU as RTAs will offer data and services to all platforms. As MFU already has built all the features/modules (including NFTs/Service requests) it will be just a plug and play to benefit investors.”
Harsh Jain, co-founder and COO, Groww told Moneylife, “This is a welcome move as it will allow for a much smoother experience for all, including investors. It has the potential to improve and elevate everyone's Mutual Fund experience in a manner similar to how UPI changed the payments domain.”
A BSE spokesperson who spoke to Moneylife on behalf of BSE StAR MF (another such transaction platform from BSE) also welcomed the move and said “BSE welcomes SEBI efforts to standardise messaging and services which will go a long way in making all MF services to all distributors including the ones coming through stock exchanges and other platforms which is currently not possible.”
A decade back, almost 80% of the transactions in the MF industry was physical. It was AMFI’s vision, which led to the launch of MFU and the shift to digital transactions. A proposal was submitted by AMFI to SEBI in May 2012 detailing all the facilities that shall be offered to transactors (distributors and investors), which included consolidated account statement on demand, facility for digital transactions/service requests, centralised grievances mechanism and aspects to enhance customer and distributor experience in transacting with MFs.
AMFI had, in fact, defined MFU in the proposal as “an enabling market infrastructure for MFs that is future-ready, scalable, cost-efficient, provides national and global reach and provides benefits to various stakeholders.” It is noteworthy that SEBI’s new circular includes all the recommendations from AMFI’s old proposal and seeks to reinvent the wheel all over again.
The old proposal drawn up by AMFI for MFU (which complies with SEBI) also included a plan to connect with stock exchanges and depositories while proposing a common account number (CAN) for MF investors. Standardisation of processes/ practices and interoperability across RTAs for account related information was also a huge advantage for investors and distributors. If the MFU platform had been effectively used, it could have led to a cost saving of 30%-50% for the MF industry.
If SEBI recognises MFU as the market infrastructure institution, all the transactions in MFs will go through a single gateway, i.e., MF Utilities. The platform has to provide guaranteed clearing and settlement functions for transactions in MFs. In other words, MFU can become the clearing corporation of the MF industry. Currently, fund houses use different payment gateways to settle transactions.
MF industry experts say that this could lead to significant improvement in the transaction efficiency, transparency, liquidity and risk management practices in MFs along with added benefits like reduced settlement and operational risk and savings on settlement costs.
SEBI intends to ensure data/services are available and level playing field. It would have been not only logical but also easier and more practical if the same could be done via MFU which has been already built with that vision and is currently providing the same services rather than building a new platform for which expenses will come from the MF investors’ pockets.