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Ban on pool accounts for MF investments gives stakeholders implementation headache

Mutual fund distributors, brokers and platforms using pool accounts have reported that investments in mutual funds are being delayed or rejected as they race to implement the new mechanism by July 1.

April 24, 2022 / 07:50 AM IST
Representative image.

Representative image.

All stakeholders in mutual funds are said to be busy implementing the Securities & Exchange Board of India (SEBI) mandate to stop using pool accounts for investments in units of mutual funds. While the regulator has extended the deadline for the same to July 1, 2022, mutual fund distributors say they will have to make additional efforts to cater to their clients.

Delay in making investments

As things stand, brokers and distributors are at various stages of implementation. The industry promoted platform MF Utility has stopped accepting cheques, RTGS and NEFT, but does process purchase requests through net banking, Unified payments interface (UPI) and NACH mandates.

Some brokers, too, are accepting RTGS and NEFT transfers, but are working rigorously with the payment services providers to set up fund movement arrangements from clients’ accounts to mutual funds’ accounts.

SEBI had asked mutual fund houses to ensure that no mutual fund distributor, online platform, stockbroker or investment advisor pools investors’ money in a bank account and then transfers it to the fund house to purchase units of schemes for those investors. This is to ensure that the money does not get misused. The regulator asked the mutual fund industry to implement this from April 1, 2022. However, the deadline has been pushed to July 1.


In the meantime there are issues even with net banking-driven payments. “Though the clients have been paying using net-banking well before the cut-off time, the units are getting allotted at the next day’s net asset value,” says Amol Joshi, Founder of Mumbai-based Plan Rupee Investment Managers. “Payment aggregators and other stakeholders need to iron out such delays,” he adds.

Joshi says that since the amounts take nearly 2-3 hours to reach the fund house, an investment made, say, at around 12:30 or 1 pm, reaches the fund house after 3 pm, which is the cut-off time daily for application. In other words, if fund houses receive your money after the cut-off time, you'll get units allotted at the next day’s net asset value (NAV).

The delayed allotment of units may irk some investors looking to buy a dip in the market if the market bounces back the next day. For long-term investors investing at regular intervals, this may not mean much from the overall portfolio returns point of view.

“Since we have been accepting money through net banking we did not face much trouble. The money gets directly credited to the mutual funds’ bank accounts. However, in the initial days, RTAs did double confirm with us if the money is flowing from the bank account of the client,” says Mohit Gang, co-founder and CEO of Moneyfront, an online distributor of mutual funds.

A double-edged sword

Stockbrokers, however, foresee clients being forced to show more involvement in the operational part of investments. This may cause some inconvenience for many, especially busy high networth individuals. “Earlier, investors could instruct the stockbrokers to move quickly from one product to another on a phone call. For example the sale proceeds of a liquid fund could be used to purchase a stock or the profits booked by selling a stock could be easily parked into a liquid fund. But in the new regime, the mutual fund purchase needs to be paid by the client each time, using funds in his bank account. Also, each sale of units of mutual funds needs to be double authenticated by the client and the sale proceeds go to his bank account,” says Ashish Shah, founder of Wealth First Portfolio Managers.

“The entire ecosystem of dematerialised investments was aimed at convenience, transparency and cost efficiency. In the new arrangement the convenience of the customer is sacrificed and operations costs, too, go up,” he adds.

Movement of funds directly to a mutual fund's or the clearing corporation’s bank account needs to be faster. Distributors may have to spend some time tracking the funds in the new system as the money flows from the client to the mutual fund house (via the clearing corporation, if applicable).

Says Neeraj Choksi, co-founder of NJ India Invest, “When the funds were flowing from and to the pooled accounts, we knew the whereabouts of the money. But as pooled accounts will be done away with, we will have to seek the status of funds from the clearing corporation or payment aggregator involved.”

When units in mutual funds are sold, distributors will send an authentication code (one time password) to investors on the mobile number and email id recorded in the database of the RTA. This OTP needs to be keyed in by the investors to authenticate the transaction. “There may be some discrepancy in the contact details of the investors in the records of the RTAs as some of these were recorded years ago. And the customers may have changed those mobile numbers and emails by now. We need to see how this challenge is dealt with and a seamless process is put in place,” says Gang.

Going forward, stakeholders in the mutual fund industry will be busy putting in place many of these processes to cut the time and effort involved, while adhering to SEBI guidelines.

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Nikhil Walavalkar
first published: Apr 21, 2022 07:51 am
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