Thread by @Mohit_Gang

SEBI has come out with EOP guidelines which hugely impacts how Direct Plans are currently being sold in the country. Read on for finer details:

1) All online platforms to classify themselves as EOP1 or EOP2 which means an Execution-Only Platform

#mutualfunds #directplans #SEBI

2) Background - Most of the online platforms offering Direct Plans operate under the SEBI RIA (advisory) regulations but owing to the size & scale of business they act as mere facilitators of Direct Plans. They dont necessarily give full-fledged advisory services to clients.

3) To bring more clarity around such online platforms, SEBI has issued new circular which allows such platform to move from being advisory in nature to being execution paltforms.

4) All platforms will have to opt one mechanism --EOP 1 or EOP2.

#investing
#personalfinance

5) Only Body corporates will be allowed to opt for this

6) EOP 1 will mean aligning with AMFI & have a seperate agreement directly with AMCs. In such cases AMC can pay platform a flat transaction fee ( which cant be based on txn value) & can also chose to bear onboarding charges

7) platforms can also chose to provide Direct Plans through broking route & be classified as EOP2.

8) Currently quite a few platforms like Zerodha, Groww, PayTm etc provide direct plans through the exchange route (broking model).

#broking #mutualfunds

9) EOP2 will become agents of clients and can charge client a flat transaction fee (not based on value of txn). They cant deal with AMCs and will not be compensated by AMCs.

10) EOP2 will have to be registered with SEBI seperately.

#regulations #mutualfunndssahihei

11) Most importantly, entity providing Direct plans can offer regular plans under a different group entity or segregated business. But they cant offer both Direct and Regular plans to the same client or his family through any affiliated group entities.

#directplans

12) There are many large platforms today who offer Pvt Banking services and do only Regular plans for clients. But for select few HNIs they offer Direct plans through the broking route. This paper effectively puts lid on all such practices.
#WealthManagement

13) Also, one prevalent practice in market is to provide direct+regular service in ratio of 70-30 or 80-20 to earn some money & not charge the clients a seperate fee. This paper firmly puts a lid on this model.

14) Finally, paper also aims to put a stop on hybrid models of "advisory + execution" both. If a platform wants to be a pure-play Advisory, it can continue as one and follow the RIA guidelines thereof.

15) charging & order placement clarity will have to come from AMFI on EOP1.

16) This circular was long awaited & provides much needed clarity to all online platforms. gives clear directions ahead.

17) Complying with SEBI RIA regualtions could be onerous for digital platforms owing to a large number of clients & this gives them a little breathing space.

18) Expect most of the broking platforms like Groww, PayTm, Zerodha to go the EOP2 way

19) Most other pure-play MF platforms should ideally move the EOP1 way

20) Expect large broking & pvt banking players who currently offer both regular+direct to stop Direct plans altogether.

21) SEBI has squarely left lot to be defined by AMFI for EOP1 players.

22) For EOP2 - quite a few norms have already been laid out in the circular.

23) This circular will come into force wef Sep1, 2023.

24) More clarity around operational things should come from AMFI soon