NEW RULES ON MUTUAL FUND INVESTMENTS FROM JULY 1 AS MANDATED BY SEBI. WHAT HAS CHANGED?

SEBI's new rules on mutual fund investments through pool accounts from July 1

With effect from 1st July 2022, the Securities and Exchange Board of India’s (SEBI) regulation has banned the use of brokers’ pool accounts for mutual fund transactions.

SEBI had issued a circular last year that it will prohibit the pooling of funds for mutual fund transactions from 1st April. After many complained of failing SIP transactions, the deadline was extended to 1st July to enable a safer, more efficient technology overhaul and a smoother transition.

But since July 1, all non-exchange transaction platforms, including mutual fund transaction utility have taken this implementation into account. There have been issues and glitches in the transition, but the same is now improving and the change is slowly settling in.

Here’s all you must know about SEBI’s new rules.

What is a pool account?

Pool accounts are electronic wallets provided by brokers. It is a bank account where individual investors put their money in order to buy mutual fund units to buy from a particular scheme. The broker pools money from here to make this transaction happen.

What does this change look like?

From July 1, individual investors cannot make transactions from a pool account. These transactions must be one on one with the mutual fund’s bank accounts from here onwards, as per the SEBI regulation. This means that the money must go from the investor's bank account to the mutual fund house’s bank account directly.

This SEBI order prohibits mutual fund distributors, online platforms, stockbrokers, or investment advisors from accumulating money on behalf of investors in a bank account (pool account) and then transferring it to the fund house for investment. This is done to guarantee that the funds are not embezzled.

However, the mutual fund investors and distributors have raised concerns like delayed confirmations on the allotment of units, them being unable to pay using cheques, RTGS and NEFT, and failing SIP transactions. It is assured that these problems are going to be resolved very soon.

What changes should mutual fund investors expect?

MF investors may face problems due to this new rule. But a highly popular, industry-supported platform for transacting units, MF Utilities, has stated that registrars and transfer agents now have better systems, and the situation has improved. No delay is seen in the allotment of units where the rules are followed. According to a report by moneycontrol, it is indicated that the delay in confirmation of transactions was up to six days earlier this month which has now come down to a day or two.

A new regulation will stop your broker from transferring funds from your broking account balance to your mutual fund house for all SIPs (Systematic Investment Plans).

Online mandates will need to be submitted by SIP investors to the National Automated Clearing House (NACH).

Now the investors need to make sure that their personal details like their mobile number and email are not incorrect at the fund folio level. A one-time password (OTP) sent to the investor's email address and mobile phone number is essential since the regulator requires double factor authentication (2FA).

What is your take on this change? Do let us know in the comments section.