Explainer : SEBI mandates integrated, single platform for all mutual fund services

In a bid to streamline and ease mutual fund transactions taking place across different forums, SEBI (Securities and Exchange Board of India) proposed the Registrar and Transfer Agents (RTAs) to develop a common, free platform for purchasing, redeeming, and storing investment details for all mutual fund holders, with a completion deadline for the same being 31st December 2021. 

Notably, RTAs are third party agents and private firms that provide information storage and maintenance infrastructure and single points of investor data reference for various fund houses across the country CAMS (Computer Age Management Services), which has a market share of 70 percent and KFintech, a well-known RTA with over 100 million investor accounts. 

The move comes in the midst of an exponentially growing industry, which has Rs 34.10 trillion of assets under management (AUM) in June 2021, rising 30.82 percent from Rs 26.07 trillion in June 2020, per a report by AMFI (Association of Mutual Funds of India). 

“RTAs shall implement standardized practices, system interoperability amongst themselves to jointly develop a  common industry-wide platform that will deliver an integrated,  harmonized,  elevated experience to the investors across the industry. AMCs and Depositories shall facilitate the RTAs for the development of the proposed platform”, the circular, dated 26th July 2021 mentioned. 

Why was it needed? 

At present, entry routes in the mutual fund industry are scattered. You can choose to go via various investment platforms like Groww, Paytm, and more, which usually do not charge any commissions. You can also purchase funds through national or local distributors, who charge a nominal commission fee (0.5-1 percent). In fact, many mutual fund houses and banks, like Aditya Birla, SBI, and more offer these services for free by means of their own holdings companies as well. 

However, non-commercial transactions, like changing your name, bank account details, or more required extensive paperwork for individual folios. Hence, if you happen to own 7 folios across various AMCs (Asset Management Company) and wanted to change a single detail, separate requests would have to be submitted for the same to each fund house. Notably, each folio works as a unique identifier, corroborating your account with the specific fund and also recording details such as invested money, transaction history, and more. 

With this platform, requests for changes across funds managed by various RTAs could be serviced in one go, instead of separate, individual requests for each of them. All necessary documentation will be integrated and seamless, irrespective of the fund house involved, thereby reducing the time, cost and efforts involved. 

Many experts also lauded the move, which aims at ensuring a better investor experience overall .“It is a good move by SEBI and will benefit the investors. Instead of submitting documents at multiple AMC’s now, investors can submit the documents in one place. However, it must be noted that all entities must follow the guidelines pertaining to data security”, said Jimmy Patel, MD, and CEO, Quantum Mutual Fund

Cybersecurity concerns

Per AMFI, the share of individual investors in the mutual fund industry has risen from 50.5 percent in June 2020 to around 53.8 percent as of June this year, thereby prompting the need for enhanced investing experience and simplification and unification of various platforms engaged in mutual fund transactions. However, concerns around cybersecurity remain, given that this would entail significant data centralization. 

The circular, addressing this, called for a robust, scalable, API- based platform with cybersecurity protocols in place with the implementation of Cyber  Security and  Cyber  Resilience framework, which is specified by the market regulator to various MIIs (Market Infrastructure Institutions) like stock exchange, clearing corporations, and RTAs. 

However, Saumya Shah, Founder, Tarakki, a wealth management application, said that the incremental risk involved in such a structure is low. “SEBI has mandated RTAs to take up proper cybersecurity measures to protect user data and set up Business Continuity Plan (BCP) and Disaster Recovery (DR) as well. Given, most of the data on the proposed systems is something that is already available with CAMS and Karvy, it does not pose a huge issue.”

Elaborating on the API-based architecture and its shareability and on whether the RTAs will continue to remain relevant, Shah remained confident that the market will soon witness new, collaborative products that simplify investing, and that both fintech and investment advisors will continue to retain and expand their user-base. 

“Wealth-tech companies and financial advisors have been able to consistently grow their users and (Assets under management) AUM because of the high-quality service and sharp investment advice they offer. Going forward, this will continue as it will not be possible for Registrar and Transfer agents (RTA's) to provide the same offerings that a financial advisor or a wealth-tech can provide. I do see both, wealth-techs and financial advisors continue to acquire and retain users. Point 6 of the circular clearly states all the services to be Application programming interface (API) based and can be shared with distributors, investment advisors, and others in the ecosystem. I do expect wealth-techs to quickly build products using these APIs and to continue offering unique value propositions to their user base”, he explained. 

What should you look out for? 

The platform will offer information regarding holdings, capital gains, Demat accounts, and more, in addition to filing and tracking investor complaints and 17 other non-financial transactions in the first phase, which will only be available for investors. In the second phase, financial transactions like purchases, redemptions, switchovers, etc. of mutual fund units are also expected to be incorporated. Subsequently, this will be made available to all distributors, investment advisors, and other stakeholders.