BackNew mutual fund rule from today. How does it impact your investments?
In October last year, SEBI issued a circular that disallows pooling of funds for mutual funds
PremiumUntil now, whenever investments were made in mutual funds, the money would be deducted from the investor's trading account just like stocks. But, from today, pooling of funds and/or units by stock brokers in any form or manner shall be discontinued for mutual fund transactions.
From July 1, mutual fund investments cannot be initiated from a pool account. The money has to go from the investor's bank account to the bank account of the mutual fund house, as mandated by Securities and Exchange Board of India (SEBI) as all transaction platforms backed by stock exchanges will implement this.
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.
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