SEBI ban on investment in MFs through pool account comes into effect from Friday

Suresh P. Iyengar | | Updated on: Jun 30, 2022

SIP will directly go from investor’s accounts to mutual fund houses

The much-awaited SEBI regulation banning use of brokers’ pool account for mutual fund (MF) transactions will come into force from Friday after the deadline was postponed.

All Systematic Investment Plans (SIPs) where the money is transferred from broking account balance to the fund house will stop from Friday and investors have to sign up for fresh National Automated Clearing House mandates in favour of the clearing corporation.

Pool account is kind of electronic wallet facility provided by the brokers. Individual investors can store money in the wallet and transfer money to buy MF units in particular scheme. However, starting Friday, investors have to mandatorily transfer money from their own bank account for investing in MFs.

Deadline extended

Last October, SEBI had directed the fund houses to not allow stock brokers, MF distributors, investment advisors and other service providers to invest in schemes on behalf of investors using their pool account from April 1, 2022.

However, the Association of Mutual Funds in India (AMFI) moved the market regulator seeking an extension of deadline to July 1 as the process involved technical changes both at the fund house and brokers end. While agreeing on the industry request, SEBI had told fund houses that they will not be allowed to launch new fund offers till its direction on pool account is implemented.

SMS acknowledgement

Though there were delays in receiving SMS acknowledgement from fund houses on receipt of investors’ money, things seem to have stabilised and it will be a smooth transition for the industry, said CEO of a leading mutual fund house.

Last December, SEBI eased the use of pool account by fund houses and said it can be used only for those transactions which are executed at the fund house level owing to certain operational and regulatory requirements.

As per existing rules, trustees and asset management companies should ensure that the assets and liabilities of each scheme are segregated and ring-fenced from other schemes of the fund house, and bank accounts and securities accounts of each scheme are also segregated and ring-fenced.

However, after the mutual fund industry apprised the regulator of instances where pool accounts are used at the fund house level for operational ease and certain regulatory requirements, SEBI agreed to allow the industry to use pool accounts. However, such use of pool accounts is subject to certain conditions, it said.

Published on June 30, 2022
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