Archive / Mutual Fund Distributors / Fund Distribution and Channel Management Practices

nism-series-va-execution-only-platforms-eop-framework[ MUTUAL FUND DISTRIBUTORS ]

Under SEBI's Execution Only Platforms (EOP) regulations, what is the core structural difference between 'Category 1 EOP' and 'Category 2 EOP'?

[ A ]Category 1 EOP distributes only physical gold, while Category 2 distributes real estate.

[ B ]Category 1 EOP operates without any SEBI registration, while Category 2 operates under municipal police approval.

[ C ]Both EOP categories are legally prohibited in India.

[ D ]Category 1 EOP acts as an Agent of the AMC (earning fees directly from AMCs within TER limits), whereas Category 2 EOP acts as an Agent of the Investor (registered as a stockbroker, charging transaction fees directly to investors).[ CORRECT ]

Takeaway

Option D is correct: Category 1 EOP acts as an Agent of the AMC (earning fees directly from AMCs within TER limits), whereas Category 2 EOP acts as an Agent of the Investor (registered as a stockbroker, charging transaction fees directly to investors).

Derivation

SEBI's Execution Only Platform framework splits digital distribution into two structurally different agency relationships. A Category 1 EOP acts as an agent of the AMC — it earns its revenue as a distribution fee paid by the fund house, embedded within the scheme's TER, so the investor pays nothing extra to the platform directly. A Category 2 EOP instead registers as a stockbroker and acts as an agent of the investor, executing direct-plan transactions and charging a transparent transaction fee directly to the investor rather than drawing from AMC-paid commissions. This distinction matters because it determines who the platform is legally accountable to and where its incentive to push particular schemes actually sits.

Why the others fail

A — Category 1 EOP distributes only physical gold, while Category 2 distributes real estate.

EOP categories govern digital execution channels for mutual fund units, not the physical distribution of commodities like gold or real estate.

B — Category 1 EOP operates without any SEBI registration, while Category 2 operates under municipal police approval.

Both Category 1 and Category 2 EOPs require formal SEBI or stockbroker registration; neither category is permitted to operate without regulatory oversight.

C — Both EOP categories are legally prohibited in India.

EOPs are a recognized, SEBI-regulated digital distribution channel for direct mutual fund plans; they are not prohibited entities under Indian securities law.