Mutual fund investments will not be initiated from pooled accounts from tomorrow. This is to comply with the Securities and Exchange Board of India order that said stock brokers, mutual fund distributors, investment advisors and other service providers involved in mutual fund transactions would stop pooling of funds and / or mutual fund units. Now, the money will have to go from the investor’s bank account to the bank account of the mutual fund house directly.

All non-exchange transaction platforms including MF Utility have already implemented it since June 1, of course with some glitches. But the situation is improving gradually and may become error-free as all stakeholders catch up with the new operations rigmarole.

What went wrong earlier?

Mutual fund investors and distributors have been vocal about issues such as delayed confirmations about allotment of units, inability to pay using cheque, RTGS and NEFT, and failed SIP transactions, among others.

How does it impact mutual funds investors?

Under the new rules, investors’ trading account can no longer be used to invest in mutual funds. The money will directly go from the investor’s bank account to the bank account of the fund house. Therefore, if one wants to buy mutual funds (MFs), they will have to make payments to the AMC directly from bank account. Likewise, after redeeming mutual funds, the credit will hit the bank account linked to the investor’s demat account. 

Investors would need to set up a mandate for all their systematic investment plans (SIPs) directly from their bank account as the platforms will have to transit to the AMC SIP mode of investing for all SIPs.

In October last year, SEBI issued a circular that disallows pooling of funds for mutual funds from April 1st, 2022, and the deadline was later extended to July 1. The extension in the deadline was to facilitate efficient technology overhaul and its smooth transition to serve growing investor needs after many complained of failing SIP transactions.

To comply with the new norms, SEBI had also asked the mutual fund industry to stop issuing new fund offers (NFOs). “To stay focused on its efficient and effective implementation of the said October 4, 2021, SEBI circular, we as Mutual Fund Industry, have agreed to keep New Fund Offers (NFOs) launches on hold during this period. We are confident that NFOs will be back on track soon,” said N S Venkatesh, Chief Executive, AMFI.

The regulator had asked mutual fund houses to ensure that no mutual fund distributor, online platform, stockbroker or investment advisor pools accounts and then transfer it to the fund house for purchasing units of schemes for those investors. This is to ensure that the money does not get misused.