Mutual funds are unperturbed by the ban on Karvy Stock Broking as it may not have an impact on the operations of Karvy Fintech that is a Registrar & Transfer Agent (RTA) to 23 fund houses.
Karvy Fintech RTA now operates as a different entity with a completely different management and ownership structure.
"Initially, we thought there might be an impact. But Karvy Fintech, which is our RTA, does all the back-end operations. So, back-end is not affected at all and investors need not worry about their investments. Also, Ganesh V, Managing Director and CEO of Karvy Fintech has assured us that all services that are provided by Karvy Fintech as part of its RTA service to all mutual fund houses continue to run their business as usual. All investment-related information of all users is safe," said a CEO of a bank-sponsored fund house.
Karvy Stock Broking was handling client money and securities, whereas Karvy Fintech, RTA does not handle mutual fund investor money or shares, that's done by SEBI registered custodian.
RTA only keeps track of purchase and redemption of mutual fund units and informs that to the investors. So, operationally Karvy Stock Broking ban will have no direct connection with Karvy Fintech.
While it still carries the name as Karvy, the business now operates as a separate entity and the majority of it is owned by General Atlantic Singapore Fund Pte. Ltd., an investment vehicle of General Atlantic, a renowned growth equity firm headquartered in the US.
Also, there are no common directors between Karvy Fintech Private Limited (KFPL) and Karvy group companies.
Karvy Fintech Pvt Ltd is the largest registrar and a market leader, that serves over 90 million investor accounts spread over 1300 issuers including banks, PSUs and mutual funds.
Currently, 23 mutual funds including top AMCs such as Axis Mutual Fund, UTI Mutual Fund, Nippon India Mutual (Reliance Nippon Life Asset Management)are served by Karvy Fintech.
Most AMCs are also planning to inform the investors through a letter that they need not worry about their investments in mutual fund schemes and not do panic withdrawals in schemes.
"We are in the process of sending a communication to our investors saying that their money is safe and they need not do panic redemptions or withdrawals from the schemes," said another CEO from a private fund house.
On November 22, the capital market regulator, SEBI banned Karvy Stock Broking from taking new clients with respect to stockbroking activities for alleged misuse of clients' securities.
Acting upon a recently-concluded audit by the National Stock Exchange, SEBI found that Karvy Stock Broking had fraudulently pledged the shares of some of its clients – after transferring the shares from their demat accounts without informing them – and raised funds, which were transferred to one of its sister firms, Karvy Realty Pvt Ltd.