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Sebi set to allow e-commerce firms to sell mutual funds

Livemint:  June 27, 2016

Mumbai: The capital markets regulator is set to allow online marketplaces such as Flipkart and Amazon to sell mutual funds to make these products more accessible to people.

A Securities and Exchange Board of India (Sebi) panel on digitization of financial services, headed by Infosys Ltd co-founder Nandan Nilekani, submitted its recommendation on 30 May, two people directly familiar with the development said. The recommendations were then forwarded to Association of Mutual Funds in India, or Amfi, by Sebi for feedback and additional inputs, said the people, adding that the aim is to set things rolling within a month.

Initially, Sebi will allow only a few online marketplaces that meet certain criteria, including minimum net-worth, sales, after-sales track record, brand popularity and customer base to sell mutual fund products, one of the two people said.

“Sebi wants the plan to work right from the beginning. The likelihood of a customer visiting well-known online marketplaces such as Flipkart, Amazon India and Paytm on a daily basis is much higher. The idea is to attract as many potential MF investors as possible from day one without creating too much risk for customers,” said the person. “Allowing all existing players at one go will not only confuse the customers but also increase the risks for customers post investment.”

The participation of established online marketplaces as intermediaries will give potential customers a simple, seamless experience and reduce the chances of transaction-related disputes due to technical snags, said the people cited above. Sebi didn’t respond to an email sent on Friday seeking comment.

Dhirendra Kumar, chief executive of mutual fund analytics firm Value Research Ltd, disagreed with the net-worth and sales criteria proposed to select online intermediaries.

“It is not necessary to stipulate any minimum net-worth norm for an online marketplace to be eligible to sell mutual funds because the transaction is ultimately between the customer and the fund house, and the online platform is only acting as the facilitator,” Kumar said. “It is possible that even a small player may come up with brilliant innovation for customers to seamlessly transact in mutual funds through their e-commerce platform.”

The new guidelines, which are likely to be unveiled in a few weeks, will allow customers to buy mutual funds at the lowest commission compared to any other third-party channel, the second person cited above said.

Since the online marketplaces selling mutual-fund products may not be required to make as much effort as independent financial advisors and other distributors to convince customers to invest or make subsequent efforts to make customers churn their portfolio, the commissions charged by the e-commerce sites will be the lowest possible, the people cited above said.

The selling process through the e-commerce websites will be designed to warn investors if products chosen by them are unsuitable with respect to their risk-taking abilities.

A warning message will nudge customers to choose the product carefully if it involves higher risk than the customer can handle.

“After the submission of their personal and income details, potential investors will be able to see a range of MF products that may generally suit their risk profile so that first-time buyers are enthused to select from the list of schemes,” said the second person.

Investors will be required to submit their age, income and location details so that the products offered are suitable and they are not exposed to excessive risks, the person added.
To keep things hassle-free, the Nilekani committee has recommended to do away with additional know-your-customer (KYC) requirements.

“Since customers buying mutual fund products on these websites will make payments through banks, the customers will not be required to undergo additional, detailed in-person KYC process. This is because the banks through which they will make the payments may have already done the KYC. However, every MF buyer on these websites may be asked to provide their PAN/Aadhaar after submitting their other details while buying an MF scheme,” the first person said.

Kumar said this is a “fantastic” proposal since it will take away the burden of additional KYC for customers, which acts as the biggest hassle for customers.

However, for making payments through e-wallets or by cash to buy MFs on e-commerce platforms, there may be a total annual investment limit of Rs.50,000. “This is to ensure that all investments are genuine and the platform is not misused for money-laundering activities,” said the second person.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.