Sebi bans usage of pool accounts for mutual fund transactions

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The Securities and Exchange Board of India (Sebi) on Monday barred intermediaries such as stock brokers, mutual fund distributors and investment advisers from pooling of funds and units for mutual fund transactions from 1 April in an effort to protect investors against misuse of their investments.

Portfolio managers registered with Sebi have been exempted from this move.

The market regulator through circulars in 2009 and 2010 had permitted units of mutual fund schemes to be transacted through registered stock brokers and clearing members respectively, by using the stock exchange infrastructure.

Moreover, it had earlier allowed mutual fund distributors (MFDs) and investment advisers (IAs) to use the infrastructure of the stock exchanges to buy and redeem mutual fund units on behalf of their clients.

The latest notification means that stock brokers or clearing members facilitating mutual fund transactions will not be able to accept mandates for systematic investment plans (SIPs) or lumpsum transactions in their name.

Moreover, these intermediaries from April will not be able to accept or handle funds or units of investors in their proprietary accounts or pool accounts.

“We do not pool investor accounts, so it doesn’t apply to us. On a larger theme, with India aiming for instantaneous 24×7 settlement for all use cases, it makes sense to move money directly and securely from bank account directly to AMC and back without any pooling. The bigger question is will this rule then be applied to broking pooled account for stock trading as well?” said Gaurav Rastogi, CEO, Kuvera, an MF investment platform.

Sebi, in its notification, also asked asset management companies (AMCs) to ensure that for subscriptions, funds should be credited directly from the investors’ account into the MF scheme account without any intermediate pooling.

For ease of transactions, funds can be routed through payment aggregators authorized by the Reserve Bank of India or Sebi-recognized clearing corporations.

For redemption, funds from April must be directly credited to the investor’s registered bank account from the MF scheme account without any intermediate pooling.

Sebi has also barred MFDs, IAs, mutual fund utilities, channel partners and other entities, including online platforms, facilitating MF transactions from accepting payments through one-time mandate or issuance of mandates/ instruments in their name for mutual fund transactions.

The regulator has also tasked the Association of Mutual Funds in India (Amfi) to issue binding guidelines for AMCs on mitigating risks of co-mingling of funds at the level of payment aggregators/payment gateways involved in mutual fund transactions.

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