Online MF platforms may find it hard to give advice

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ASecurities and Exchange Board of India (Sebi) guidance note issued to Paytm Money has clarified the regulator’s position on the ability of online mutual fund platforms offering direct MFs to provide advice. Such platforms, including Paytm Money, are typically registered with Sebi as investment advisers.

The guidance note 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 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 MF platforms such as Kuvera and Groww avail the 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 asset management companies (AMCs) for reimbursements for providing these services. However, the request was turned down.

In a second clarification, the regulator also said that 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, mutual fund 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.

Paytm Money, for example, used to offer ‘investment packs’ of pre-selected funds to investors based on their requirements. The platform discontinued offering them from 1 April.

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