Investors using the Systematic Investment Plan (SIP) in mutual funds from July 1 must follow the Know Your Customer (KYC) process. SIPs will stop if the broker had used a pooled account for the investment and the details do not match the mutual fund (MF) house.
Money from an investor’s account will go directly to the mutual fund house, according to a new rule from the Securities Exchange Board of India (SEBI). Brokers will no longer be authorized to accumulate investors’ funds and then to buy FCP units under a particular scheme.
The new process was implemented on June 1 by MF Utilities, an industry-promoted platform for trading MF units. There were some start-up issues, but the platform said there are now rare delays in awarding units, according to a report from moneycontrol.com.
SEBI took notice when several investors complained about delays in unit awards. Final units are only awarded once a fund house receives money. The source of the money is also verified before awarding. The Money Check report indicates that the banks failed to provide investor details and that in some cases there was a mismatch between the name of the bank account and that of the folio.
Investors should update their details as SEBI has mandated two-factor authentication using a one-time password (OTP). MF Utility enabled investors to verify their personal details online.
What MF Investors Should Do
Investors should ensure that the correct bank accounts are linked to mutual fund folios and that the KYC process in their bank accounts is completed. The proceeds from the sale of FCP units will be credited directly to the investor’s bank account and not to that of the broker. In addition, investors must subscribe to new National Automated Clearing House (NACH) mandates in favor of clearinghouses. The process can be done online.
NFO ban lifted July 1
SEBI in April banned mutual funds from launching new fund offerings (NFOs) for three months. The ban was implemented to ensure that no brokers or distributors use pool accounts. It was lifted on July 1.
Previously, during the subscription period, investors parked their money in pooled stockbroker accounts. The brokers, at the end of the subscription period, transferred all the funds to the fund houses. This has been deleted now.