In today’s digital age, we invest in mutual funds using online platforms or apps. Have you ever thought about what if your mutual fund platform or App closes?
Recently there was news that the Kuvera platform was acquired by CRED. In such a situation few feel uncomfortable about such a takeover or what if the platform shut its door permanently.
Before June 2023, these platforms used to register as SEBI RIA but most of their business was just to allow investors to buy and sell mutual fund schemes on their platforms. Investment advisory was not a service that these platforms offered to their users. Hence, as there is no fee transaction between such platforms and customers, there is no protection for customers in case of any issue.
Understanding this, in June 2023, SEBI came out with a regulatory framework for execution-only platforms for facilitating transactions in direct plans of mutual funds.
As per the aforesaid SEBI circular, an entity desirous of operating as an EOP (Execution Only Platform) may choose to operate under either of the following two categories:
Category 1 EOP: The entity shall obtain registration from the AMFI and act as an agent of AMCs and integrate its systems with AMCs and/or RTAs authorized by such AMCs, to facilitate transactions in Mutual Funds.
Category 2 EOP: The entity shall obtain registration as a Stock Broker in terms of the SEBI (Stock Brokers) Regulations, 1992 under the EOP segment of the Stock Exchanges and shall operate as an agent of investors and operate only through the platforms provided by the Stock Exchanges.
As there is a huge competition to offer direct funds free of cost, many such online platforms may choose Category 1 EOP. Hence, from now onwards your platform may be under Category 1 or Category 2. Accordingly, the charges are also earned from these platforms (either charging to AMCs or its customers).
However, if you look at the whole regulation published by SEBI on June 2023 and also the AMFI guidelines, they both are silent about what should be the course of action if such platforms shut their doors or sell their platforms to some other entities.
Hence, in such a situation, it is you who has to know what you have to do.
What If Your Mutual Fund Platform Or APP Closes?
# Accept the reality
As of now, I am unable to find any such regulations of what should be the fate of users in such a takeover or closure, it is always to be prepared for such incidents. Many of these platforms are kind of startups. How long they sustain and what is their future business plan is unknown to us as users of such platforms and apps. Hence, prepare mentally yourself for what should be your course of action in case of such a takeover or closure.
# Relax!!
Yes, relax. Nothing going to happen with your money. Your money is safe with respective mutual fund companies’ products but not with these platforms. Even if they are shut down or taken over by some other entities, nothing is going to happen to your money nor such platforms can misuse your money.
# Choose what to do
If you are comfortable with a new takeover (in case of a sale), then continue your investment with the same platform or app. However, if you are uncomfortable, then choose the one which makes you feel comfortable.
In case of shutdown, you have no option but to choose a different platform or app.
# Don’t rely too much on a single platform
As the regulations are unknown in this aspect of a takeover or shut off such platforms or apps, it is wise for you not to rely too much on a single platform. Instead, create one more layer by creating a login in one more platform as a safety measure or backup.
# Have a login at AMC level too
If possible, create a login at the AMC level too, or on platforms like CAMS and KFintech (as they are the only two R&T Agents serving all AMCs in India).
This will be handy for you in case the current platform you are using shuts its door or is taken over by some other entity and you are in a phase of what to do, then safely you can transact through the AMC website or using CAMS and KFintech.
Conclusion – In this digital world, launch, takeover, or closure is a common thing. Hence, rather than relying too much on such platforms blindly, prepare yourself with what to do if such a situation of takeover or closure of platforms or apps happens. As I mentioned above, your money is safe with AMCs. Hence, in reality, nothing is going to happen with your money.
