New rules to secure online MF transactions

Markets regulator Sebi has decided to discontinue usage of pool accounts for transactions in mutual funds by online platforms, stockbrokers or distributors and there is the need for a two-factor authentication to complete a transaction.

Payments made by an investor for purchasing units of a scheme should go directly to the fund house and the sale proceeds should go directly to an investor's account. This is to ensure that money is not misused. While the original deadline was April 1, 2022, it was pushed to July 1, as intermediaries were not ready. As online brokers and distributors set up the new system, ET takes a look at what could change for investors who use various stock brokers and online platforms to transact in mutual funds.

Systematic investment plan (SIP)
Many stock brokers who also distribute mutual funds have taken a mandate from investors, using which money comes to the pool account and from there it is transferred to the fund house on the day of the SIP. Since the regulator wants money to go directly to the fund house, this will stop now. In such cases, investors need to create a new mandate through their broker in favour of Clearing Corporation of India, and also simultaneously cancel their existing mandate. If you do not cancel your existing mandate, there are chances money will be deducted from your bank account and go and rest in your trading account, as the broker cannot pass it to the fund house and you will miss your SIP. Until this mandate is set up, the broker on the day of the SIP will send an email with a link where you can make the payment via net banking or UPI.

Lump sum purchase transactions
When making a lump sum purchase transaction in multiple funds, investors transferred money by way of one RTGS / NEFT to the online platform or their stock broker. However, now this money transfer can be made only to the Clearing Corporation of India only if they want to purchase mutual funds.

Switch transactions
Some platforms offered inter AMC switch transactions, where an investor could switch from a mutual fund scheme of one fund house to another fund house. Here, money would come into the pool account of the broker, and would be pushed to the second fund house immediately. With pool accounts not to be used for mutual funds, redemption money will now directly come to the investor's bank account and he will have to redeploy it again through another transaction.

Systematic transfer plans (STPs) and Systematic withdrawal plan (SWP)
Some stock brokers and online platforms will temporarily suspend these transactions for investors, as money in this case is redeemed from a mutual fund scheme, comes to the pool account of the broker and then is paid to the investor.

Redemption transactions
As the regulator has made it mandatory to verify all digital transactions using 2 FA (factor authentication), it is important for investors to verify and update their mobile number and email ID with the RTA. In case this is not done, redemption transactions may not go through. When units in mutual funds are sold, there will be an authentication code sent to investors on the mobile number and email id which is recorded in the RTA database. Only when the investor keys in this OTP, the transaction is authenticated. This is essential as there are discrepancies in investor contact details with RTA as they were recorded many years ago.