Markets regulator SEBI on Tuesday came out with certain clarifications on transactions in the units of mutual funds and has also given guidelines for authentication in case of redemption of units.
The clarifications pertain to transactions in units of mutual funds on stock exchange platforms and also for entities including online platforms other than exchanges.
A circular issued in October 2021 had said that stock brokers and clearing members shall not accept payment through one-time mandate or issuance of mandates or instruments in their name for mutual fund transactions.
Mandate includes instrument, authorisation or order in any form, including electronic means, to effect a payment by a person for the purpose of mutual fund investment.
However, now the regulator has said one-time mandates in favour of SEBI-recognised clearing corporations may be accepted.
“On or after April 01, 2022, new mandates shall be accepted only in favour of SEBI recognized Clearing Corporations and those mandates shall exclusively be for subscriptions to units of Mutual Fund schemes and not for any other purpose,” SEBI said.
It further said existing mandates being used for mutual fund transactions can continue to remain in the name of the stock brokers / clearing members, subject to the condition that they ensure that payment aggregators (PA) put in place mechanisms wherein the beneficiary of the mandate can only be an approved account.
This account shall only be the bank account of the clearing corporation.
It has also provided certain other conditions.
The regulator has prescribed conditions with respect to processing mutual fund transactions under such mandates.
Among others, stock exchanges and clearing corporations need to ensure that PA has put in place adequate checks and balances to ensure that such approved account is that of a clearing corporation.
They also have to provide investor grievance redressal or arbitration mechanism to clients in case of breach of these conditions or misuse of funds by the PA appointed by stock brokers or clearing members.
SEBI has also issued similar guidelines regarding transactions in units of mutual funds facilitated by entities, including online platforms other than stock exchanges.
The October 2021 circular said that mutual fund distributors, investment advisers, mutual fund utilities, channel partners and other entities including online platforms (OTM holders) facilitating mutual fund transactions shall not accept payment through one-time mandate or issuance of mandates/ instruments in the name of the OTM holders for such transactions.
This is subject to the condition that AMCs ensure that the PA puts in place mechanisms wherein beneficiary of the mandate can only be an approved account, which shall only be the bank account of a mutual fund pool account or mutual fund scheme account.
SEBI has stipulated conditions for processing of such transactions.
New mandates may be accepted in the name of the OTM holders on or after April 1, 2022, subject to compliance with conditions given by SEBI and the mandates shall exclusively be for subscriptions to units of mutual fund schemes and not for any other purpose.
“AMCs shall be liable to the unit holders for breach of these conditions or misuse of funds by PA or OTM holder with respect to mandates covering Mutual Fund transactions,” SEBI said.
In case of redemption of units, two-factor authentication for online transactions and signature method for offline transactions shall be used for authentication.
One of the factors for such two-factor authentication for non-demat redemption has to be a one-time password sent to the unit holders at their email/ phone number registered with the AMC.
For demat redemption, process of authentication laid down by the depositories needs to be followed, SEBI further said.
The directions with respect to authentication will come into force from April 15, 2022.