The clarifications cover transactions in mutual fund units on exchange platforms and also for entities, including online platforms other than exchanges.

Market regulator Sebi released certain clarifications on transactions in the units of mutual funds on Tuesday and has also issued guidelines for authentication in case of unit redemptions.

The clarifications cover transactions in mutual fund units on exchange platforms and also for entities, including online platforms other than exchanges.

A circular issued in October 2021 stated that brokers and clearing members will not accept payments by means of a single authorization or issuance of mandates or instruments in their name for mutual fund transactions.

Mandate includes instrument, authorization or order in any form, including electronic means, to make a payment by any person for the purpose of investing in mutual funds.

However, now the regulator has said that one-time mandates in favor of Sebi-approved clearing companies can be accepted.

“On or after April 1, 2022, new mandates will only be accepted in favor of SEBI-approved Clearing Corporations and those mandates are for subscriptions to mutual fund units only and not for any other purpose,” Sebi said.

It further said that existing mandates used for mutual fund transactions in the name of the brokers/clearing members can remain, provided they ensure that payment aggregators (PA) put in place mechanisms where the beneficiary of the mandate can only be an approved account. .

This account is solely the bank account of the clearing house.

It has also set certain other conditions.

The regulator has set conditions with regard to the processing of transactions in investment funds under such mandates.

Stock exchanges and clearing houses, among others, must ensure that PA has adequate checks and balances in place to ensure that such approved account is that of a clearing house.

They must also provide an investor complaint or arbitration mechanism to clients in the event of violation of these terms or misuse of funds by the PA appointed by brokers or clearing members.

Sebi has also issued similar guidelines regarding transactions in units of mutual funds facilitated by entities, including online platforms other than exchanges.

The October 2021 circular stated that mutual fund distributors, investment advisers, mutual fund utilities, channel partners and other entities, including online platforms (OTM holders) that facilitate mutual fund transactions, do not accept payments through a one-time mandate or issuance of mandates/instruments in the name of the OTM holders for such transactions.

On Tuesday, Sebi clarified that existing mandates in use can remain in the name of such OTM (one-time mandate) holders.

This is subject to the condition that AMCs ensure that the PA puts in place mechanisms whereby the beneficiary of the mandate can only be an approved account, which can only be a mutual fund pool account bank account or a mutual fund account.

Sebi has imposed conditions on the processing of such transactions.

New mandates may be accepted in the name of the OTM holders on or after April 1, 2022, subject to the conditions set by Sebi and the mandates are intended solely for subscriptions to units of investment funds and not for any other purpose.

“AMCs are liable to unitholders for any breach of these terms or misuse of funds by PA or OTM holders in relation to mandates for Mutual Fund transactions,” Sebi said.

In the case of unit redemption, two-factor authentication for online transactions and the signature method for offline transactions will be used for authentication.

One of the factors for such two-factor authentication for non-demat redemption must be a one-time password sent to participants at their email address/phone number registered with the AMC.

For demat redemption, the authentication process established by the custodians must be followed, Sebi further said.

The guidelines regarding authentication will come into effect from April 15, 2022.


This post SEBI releases clarifications on investment fund transactions was original published at “https://www.financialexpress.com/money/mutual-funds/sebi-comes-out-with-clarifications-on-transactions-in-mutual-funds-units/2461931/”

LEAVE A REPLY

Please enter your comment!
Please enter your name here