SEBI recommended a regulatory framework for fintech platforms that provide investors with executive services in direct plans of mutual fund schemes.

Currently, investors can invest in a mutual fund scheme either directly (direct plan) or through a distributor (regular plan). Both direct and regular plans belong to the same scheme of a mutual fund, but their expense ratios differ.

SEBI stated that it has witnessed a number of investment advisors and stock brokers offering execution services for direct plans of mutual fund schemes via their digital platforms. Nonetheless, not all investors who execute trades in direct plans of mutual fund schemes via these platforms utilize advisory services. Instead, they exclusively use the platform to conduct transactions in direct mutual fund plans.

Typically, investment advisors and stockbrokers utilize their separate registration numbers to obtain visibility to data feeds of client transactions conducted through their platform with regard to these investors. Regarding the visibility of clients’ transaction data feeds, the regulator clarified that a stockbroker and investment adviser can have visibility of clients’ direct plan transaction data feeds from RTAs (Registrars and Transfer Agents) for clients using their codes to obtain advisory, brokerage, and portfolio management services.

The use of an investment adviser or stockbroker registration code by platforms for visibility of transactions provides investors with a comprehensive picture of their investments, which is convenient. However, the risk connected with such transactions cannot be ignored for investors who are not their customers according to investment adviser and stock-broker standards, as non-clients have no recourse or protection under any regulatory framework. Thus, a compromise must be struck between investor convenience and protection.

Currently, investment advisors and stock brokers are required by SEBI laws to onboard an investor as a client to engage in an agreement with the clients.

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