Will Direct Plans of Mutual Fund schemes become costly after SEBI’s rules for EOPs?

The Securities and Exchange Board of India (SEBI) has issued a regulatory framework for “Execution Only Platforms” selling direct plans of mutual fund schemes. The framework would be applicable from September 1, 2023. The regulator’s move is aimed to protect investors dealing with direct mutual fund schemes through multiple fintech EOP platforms.

With higher returns compared to regular plans, direct plans have gained traction among investors in the last few years. Direct plans are also cheaper than regular plans as the former does not include a commission paid to distributors.

The growing popularity of direct plans has led to a mushrooming of several online platforms dealing in such schemes. The EOP platforms allow investing in direct mutual funds without the help of distributors.

Also Read: Direct Plan vs Regular Plan: The difference you should know before starting Mutual Fund SIP

What SEBI said

The regulator observed that “various SEBI registered Investment Advisors/Stock Brokers provide execution services in direct plans of Mutual Fund schemes through their technology/digital platforms. Such platforms are often availed by investors who are not their clients in terms of SEBI (Investment Advisers) Regulations, 2013 or SEBI (Stock Brokers) Regulations, 1992.”

“While the investors may find it convenient to avail the services of such online platforms, investors who are not clients of such intermediaries under the above-specified Regulations may not have recourse or protection for the risks associated with respect to such transactions. Therefore, a need was felt to strike a balance between investor convenience and investor protection,” the regulator said.

Will direct plans of mutual fund schemes become costly?

According to an expert, the implementation of SEBI’s regulatory framework for EOPs would not make direct plans costly for investors.

“Direct plans won’t become any expensive post the guidelines. Direct platforms currently use BSE or MFU for transaction processing. Both BSE StarMF and MFU charge a transaction fee from AMCs which is already included in AMC expenses,” says Gaurav Rastogi, Founder Kuvera.in

Rastogi further says that there is no change in the status quo for the Direct plan execution, thus no impact on Direct plan costs for AMCs or investors.

Also Read: Mutual Fund calculator: These schemes turn Rs 10,000 SIP into Rs 3 crore to Rs 5 crore in 20 years

Also, competition for execution mandates would lead to lower costs and better service. “Additionally, EOPs biggest impact is that it separates the frameworks for direct plan execution and advice which was necessary,” he says.

Disclaimer: The views and suggestions mentioned here are those of the respective commentators. The facts and opinions expressed here do not reflect the views of www.financialexpress.com. Please consult your financial advisor before investing in mutual funds.