Sebi Wants E-tailers to Sell Funds Also

LOG ON Move likely to reduce cost of buying MFs and attract more investors who can save on fee to the intermediary

The Securities and Exchange Board of India (Sebi) is eyeing India's booming ecommerce segment to make mutual funds schemes available to a wider section of investors at a cheaper cost. The capital market regulator has sounded out e-commerce companies about the possibility of these firms selling financial products on their platforms.

Sebi chief UK Sinha met Nandan Nilekani -former chairman of Unique Identification Authority of India (UIDAI) -who heads the regulator-appointed committee to suggest measures to reduce cost structure of mutual funds, and representatives of e-commerce companies such as Flipkart, Scripbox, FundsIndia.com and Paisabazar.com, among others, in Bengaluru on Thursday in this regard.

“Sebi wants automation of mutual fund sales architecture including e-KYC (know your client) which will reduce the cost of buying mutual fund schemes. This will make it easier for investors to buy mutual fund products,“ said a person who attended the meeting last week.

A Sebi note on the topic sent to executives, who attended the meeting in Bengaluru last week, said, “The use of electronic means for buying and selling products in the securities market is not keeping pace with the developments in the e-commerce marketthe banking industry“.

Currently, investors can buy mutual funds directly or through distributors or financial advisors. Investing directly is cheaper than tapping the services of distributors because investors save on the fee they pay to the intermediary. This would result in the creation of the third category of net asset value (NAV) as the expense ratio -the amount that mutual funds charge investors to manage the money -of schemes sold through online platforms would be different from that of direct and distributor channels.

Through the `Online Only Distribution Model', the ex pense ratio of mutual fund schemes would be between the cost of money invested through the direct and distributor routes. Wealth managers said the proposed system will add to the complexity of investing in mutual funds.

“There is a need to reduce costs of investing in mutual funds but creating a third category of NAVs will only make it all the more confusing. Investors are just about coping with the direct plan,“ said Manoj Nagpal, chief executive, Outlook Asia Capital.

Sebi feels easing of the KYC or know your client process will be key to making investing through online platforms a success.

“One of the major bottlenecks identified was the present KYC process for onboarding of the investors through electronic online platform, for example, the need for oneon-one interaction for in-person verification, requirement of wet signature, etc,“ the Sebi note said. The capital market regulator said the e-KYC route with the use of Aadhar cards, validations using biometric phones and e-signatures will make investing through e-commerce platforms a success.

The Economic Times, New Delhi, 20th Oct. 2015