On Monday, SEBI issued a discussion paper on discontinuing the usage of pool account by brokers, distributors and RIAs to protect investor's money.
Until now, brokers and distributors were allowed to make transactions on behalf of investors through stock exchanges via a pool account. Last month, SEBI found that Karvy Stock Broking was raising funds by pledging investors' shares held in the pool account.
After the Karvy incident, the regulator is looking to tighten MF transaction by stopping the working of a pool account.
If the proposal gets through, there will be disruption across advisory business, said experts. Currently, mutual fund investors have three options to execute transactions – SIP, lump sum and switch.
While there will be no impact on SIPs as SIP money goes directly to the clearing corporation, lump sum and switch transaction would be affected as most of these transactions use pool accounts.
A senior official of an exchange platform believes the move would increase cost of investing in mutual fund for investors in lump sum mode. He said, “Currently, there is no convenience fee for investors investing in mutual funds through lump sum mode. All these expenses are covered by exchange
platforms and they levy transaction fee on AMCs, which ranges between Rs.6 and Rs.30 per transaction depending on the volume. However, if the proposal goes through, investors will have to pay convenience fee at the time of investing.”
A senior official of another exchange platform said that the move would affect switch transactions. He said, “Currently, most advisors do rebalancing and asset allocation through switch transactions. However, if redemption proceeds are credited to their bank account, it is unlikely that the entire proceeds would come back to the industry.”
In the current financial year, the total amount of transactions made through the pool account by stock exchanges stood at Rs.1.04 lakh crore as against Rs.50,593 crore done through non-pool account.
