Online mutual fund platforms may find it harder to advise after Sebi guidelines

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MUMBAI: A guidance note issued by the Securities and Exchange Board of India (Sebi) to Paytm Money clarifies the regulator’s position on the ability of online mutual fund platforms offering direct mutual funds to provide advice. Such platforms, including Paytm Money, are typically registered with Sebi as investment advisors.

The guidance was issued on 9 April, following an application from Paytm Money to the regulator. According to Sebi, such platforms will be prohibited from taking any type of remuneration from mutual fund houses even for execution functions such as KYC, payment gateway, technology hosting and platform maintenance.

According to a person with knowledge of the matter who declined to be named, other direct mutual fund platforms such as Kuvera and Groww avail services of intermediaries like BSE Star MF whereas Paytm Money had developed internal infrastructure for the services mentioned above. The platform had hence requested the regulator if it would ask AMCs for reimbursements for providing these services. However the request was turned down by the regulator.

In a second clarification, the regulator said a platform can only provide advisory services after an investment advisory agreement is signed with the client incorporating certain terms and conditions mandated by Sebi. Mere online consent with a copy of the agreement emailed to the client’s inbox will not be sufficient. A senior industry professional, however, added that this does not mean physical or ‘wet signatures’ will be needed. Instead, platforms will ask clients to execute their physical signatures on computer screens and this is considered as a valid signature, he said.

However, the new Sebi guidance can place on hold any type of advisory solutions for users of the platforms till an agreement is signed, including free advisory the aforesaid executive emphasised. Paytm Money, for example, used to offer ‘investment packs’ of pre-selected funds to investors based on their requirements. The platform discountinued them from 1st April 2021.

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