New common RTA vs MF Utility: Duplication or more options for customers?

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Nidhi Gupta, 40, invests in more than five mutual fund schemes. A few years ago, she changed her job but continued with her old salary account for just one reason — she did not want to go through the strenuous task of switching bank accounts for all five different mutual fund schemes. “Instead of changing bank accounts for five different schemes, I preferred continuing with the old bank account even if I have to set aside the minimum bank balance of Rs 10,000 per month,” she said.

There are many like Nidhi who find the paperwork strenuous because of their demanding jobs and hectic schedules. Addressing the issue, the Securities and Exchange Board of India (Sebi) issued a circular on July 21, 2021, asking Registrars and Transfer Agents (RTAs) to develop a common platform for servicing mutual fund customers jointly. The new platform will be jointly built by two RTAs — KFintech and CAMS.

“The scope of solutions and services of MFCentral are unique, complementary and value-enhancing platform for investors and distributors. The solutioning for the platform is a complete ground-up re-imagining of processes, architecture and outcomes. It offers near real-time resolution as against just logging in the service requests. We believe it will facilitate and foster a greater degree of innovation in future,” said Sreekanth Nadella, chief executive officer of KFintech.

This means that after the platform goes live, Nidhi will be able to change the bank account for all her schemes in one go on a real-time basis. Moreover, she will be able to change details while sitting in the comfort of her house.

While Sebi’s initiative is a welcome move as it will help investors’ lives easy, a similar platform called MF Utility already exists. Many are questioning the need for the second entity to provide the same set of services. 

Existing platform

MF Utility (MFU) is an initiative by the mutual fund industry under the aegis of the Association of Mutual Funds in India (Amfi), which the participating mutual fund companies equally own. By creating a Common Account Number (CAN), a customer can transact across mutual funds schemes using a single form or payment method. The platform currently has a turnover of close to Rs 10,000 crore to Rs 15,000 crore every day. Out of this total amount, 30% comes from retail investors. However, the low percentage has indicated that the MFU platform has not been so popular among retail investors like Gupta for some reason.

V Ramesh, an independent director and former MD and CEO of MF Utilities, and former deputy CEO of Amfi, however, disagrees.

“The fact is that MFU was created with exactly the same intention seven years ago. The facility is already existing and AMCs themselves own it. First, whatever was given in the proposal, should be implemented fully and then they should look at other options,” he said.

A proposal to form MFU was submitted as an industry initiative to Sebi in May 2012, which was approved in June 2012. In January 2015, the MFU system was launched by Amfi.

Industry experts say that the investors will tend to benefit as multiple submissions will not be required and the commonality of the database will speed up the process.

“The commonality is needed to standardise the procedure and ensure that the data is uploaded at the one end and automatically uploaded across folio levels. So commonality of the platform is needed but the question is do we need one more platform is debatable,” said Jimmy Patel MD and CEO Quantum Mutual Fund.

What is in it for investors?

One of the critical questions is will the new platform increase the cost to customers? “Every platform has a cost. And to be competitive as an AMC, you need to be present across all those platforms. If the volume increases substantially, there won’t be much impact. Otherwise the platforms are going to hike up the cost to recover their margins,” says Patel.

“With investors’ interests at the core, standardising disparate processes was the starting point of the platform creation. The team had been working with AMCs to rationalise and standardise the same. With requisite consensus, the resultant processes are built into the platform. There may be minor differences owing to varying risk management practices different organisations adopt,” says Nadella.

Addressing the cost issue, Nadella says: “The platform will be sustained by the registrars through effective utilisation of digital real estate of MFCentral.” 

CAMS did not reply to queries sent by Money9 till the time of filing.

The mutual fund industry has been steadily rising with assets worth Rs 34.10 crore as of June 2021. In such a case, experts say seamless digital services by multiple platforms will be the need of this growing industry.

“I don’t think this is going to change the existing transaction platform. We already have both NSE and BSE working together. It will only give more options to the investor and MFU will also benefit out of it,” says a CEO of a mutual fund house on condition of anonymity.

As directed by Sebi the new platform has to be operational in a phased manner and has to be fully operational by December 31, 2021. We believe future holds more with better and real-time services for investors in coming years.

(With inputs from Himali Patel)