With effect from April 1, 2022, stock brokers, mutual fund distributors, investment advisors and other service providers involved in mutual fund transactions for their clients were to stop pooling of funds and/or mutual fund units. This was to comply with the Securities and Exchange Board of India (SEBI) October 2021 circular barring such pooling.
The intention behind SEBI’s move was to ensure the safety of investors’ money and prevent its possible misuse by middlemen involved in such transactions.
However, in a last-minute change, SEBI has extended the deadline to stop this pooling of funds and MF entities till July 1, 2022, providing three months’ relief to such entities.
According to Ashish Rathi, Whole Time Director, HDFC Securities, under the current system, when you place a buy order for mutual fund units through a stockbroker, the money from your account gets credited into the broker’s pool account. From there the money goes to the account of NSE Clearing or BSE Clearing Corporation, which is deposited in the account of Mutual Fund AMC.
Once this pooling is stopped, the funds will go directly from the investor’s account to NSE Clearing or BSE Clearing Corporation and not to the stockbroker’s account. Similarly, mutual fund units should also be credited directly to the investor’s account (in cases where this is not happening at present) after the SEBI-initiated move is effective.
Several other measures like requirement of two-factor authentication for online redemption requests also became part of SEBI’s October 2021 circular. The deadline for these has also been extended by a few months.
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