Will free MF platforms finally make money? Amfi proposes ₹2 per transaction

Will free MF platforms finally make money? Amfi proposes ₹2 per transaction

Free mutual fund platforms in India, such as Kuvera and MF Utilities, are gearing up for a change of avatar —They will soon be execution-only platforms, or EOPs. In the case of MF Utilities, the transition has already happened. Category 1 EOPs can receive a flat fee per transaction from asset management companies (AMCs), while category 2 EOPs which use stock exchange infrastructure for their transactions can charge customers, as per a June 2023 circular put out by market regulator Sebi.

Among the two categories, the business model for category 2 EOPs is relatively straightforward. Their mutual fund transactions are handled by stock exchanges at the back end. The Sebi circular permits them to charge customers depending on their business considerations. However it is likely that such platforms will launch ‘value add’ features like calculators, tax harvesting or account aggregator services and then might start charging for transactions if customers see value in them. There is no upper cap on such fees laid down by Sebi.

Kuvera is likely to move into this category. So far, it has relied on an RIA (registered investment adviser) license for its direct MFs. Kuvera uses BSE Star MF infrastructure at the back-end and is in talks with CRED which is looking to acquire the platform.

Some platforms like Zerodha Coin and Groww which have a broking license aren’t seeking an EOP license at all, a person with knowledge of the matter said on condition of anonymity.

Brokers do not make money from transactions in direct plans of mutual funds, instead they seek to cross-sell other products to their users. One major risk of this model is that brokers are incentivized to cross-sell high-risk futures and options which earns them commissions.

The scenario for fintechs seeking to be category 1 EOPs is more complex and causing great confusion for platforms. The large exchange-run platforms are by default category 1 EOPs. Other category 1 license holders include ET Money, Jupiter and Smallcase, as per details available on the website of the Association of Mutual Funds in India (Amfi).

In addition, MF Utilities, another industry-run platform has also registered as a category 1 EOP. Since MF Utilities also allows distributors to use its platform to sell regular plans, the platform has undergone significant change. Direct mutual fund investors have a ‘direct’ section which falls under the EOP license. Distributors have been given an intermediary login. However, so far the direct section does not show users their portfolios. For this, users need to shift to the intermediary login, adding to their confusion.


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MF platforms are also upset that Amfi has set a cap of just 2 per financial transaction, which they see as unviable. In addition they allege that AMCs are dragging their feet when it comes to signing agreements to operationalize category 1 EOP.

The Sebi circular was to come into effect from 1 December but many of the category 1 EOP applicants have not commenced operations due to lack of agreements being signed with AMCs.

MF platforms are also worried about privacy rules in the model agreements drafted by Amfi that will make cross-selling more difficult.

However, platforms that were running as RIAs but only providing execution services to customers see EOP as the light at the end of the tunnel. These platforms will come out of the ambit of the onerous RIA regulations and start charging customers or AMCs for their services. From a customer point of view, the jury is still out—business models will evolve and one way or the other, it is they who will end up paying. This is unsurprising—a free lunch can last only so long.

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Published: 27 Dec 2023, 11:41 PM IST

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