 "funds")
Investors using the systematic investment plan (SIP) in mutual funds from July 1 have to complete the Know Your Customer (KYC) process. SIPs will stop if the broker had used pooling account for investment and the details do not match with the mutual fund (MF) house.
Money from an investor's account will go directly to the mutual fund house, according to a new rule by the securities exchange board of India (SEBI). Brokers will no longer be allowed to accumulate investors’ funds and then buy the MF units under a particular scheme.
The new process was implemented on June 1 by MF Utilities, an industry-promoted platform for transacting MF units. There were teething problems but the platform has said there are rare delays now in allotting units, according to a report by moneycontrol.com.
SEBI took note when several investors complained about the delays in allotments of units. The final units are only allotted once a fund house receives money. The source of the money is also verified before allotment. The moneycontrol report said that banks had failed to submit details of the investors and in some cases, there was a mismatch between the name in the bank account and the one in the folio.
Investors have to update their contact details as SEBI has mandated double-factor authentication using a one-time password (OTP). MF Utility has allowed investors to verify their personal details online.
What MF investors must do
Investors must ensure that correct bank accounts are linked to the mutual fund folios and the KYC process in their bank accounts is complete. The proceeds from the sale of MF units will be credited directly to the investor's bank account and not that of the broker. Also, investors need to sign up for new national automated clearing house (NACH) mandates in the favour of clearing houses. The process can be done online.
NFO ban lifted on July 1
SEBI had, in April, banned mutual funds from launching new fund offers (NFO) for three months. The ban was implemented to ensure that no broker or distributor uses pool accounts. It has been lifted on July 1.
Earlier, during the subscription period, investors parked their money in pool accounts of stock brokers. The brokers, at the end of the subscription period, transferred all the funds to the fund houses. This has been done away with now.
