Stock broking companies distributing mutual fund will now be in line with MFDs and RIAs to execute mutual fund transaction.
SEBI has done away with execution of MF transaction through pooled account generally used by stock brokers. With this, they will not be able to use their pooled accounts to execute mutual fund transactions. The circular will come into effect on April 1, 2022.
Currently, investors park money with stock brokers to execute transaction in stocks, bonds and mutual funds. With this, investors having account with brokers can no longer use this mechanism for mutual funds. However, they can continue execute transaction in stocks, derivative and bonds through pooled account.
Experts believe that this will affect inflows in liquid funds and overnight funds as many investors park their money in these categories through pooled accounts during weekends.
The regulator has asked stock exchanges to introduce a process wherein stock brokers can facilitate transactions directly from the investors' accounts. Such a process is already in place for MFDs and RIAs.
"Similar to mechanisms for transactions in mutual fund units by MFDs and IAs, stock exchanges shall put necessary mechanisms in place for stock brokers / clearing members also, to ensure that funds pay-in is directly received by the clearing corporation from the investor account and funds pay-out is directly made to the investor account," SEBI said.
"Pay-in / pay-out of funds shall not be handled by the stock brokers / clearing members," the circular added.
The move will ensure uniform process for all entities involved in mutual fund distribution.
In the circular, SEBI clearly listed what stock brokers and clearing members can no longer do when it comes to mutual fund transactions.
- They can't accept mandates for SIPs or lumpsum transactions from investors in their name
- They can accept cheques from investors only in favour of SEBI recognised Clearing Corporations and mutual fund schemes
- They can't accept funds or units of investors in their account or pool accounts
- They can't accept payment through one-time mandate in their name
AMCs will have ensure that no transactions happen through third party bank accounts. SEBI said AMCs can take the help of clearing corporations to ensure compliance.
According to the circular, stock exchanges and AMFI will have to prepare guidelines for the purpose. The guidelines will include information on roles and responsibilities of various stakeholders, sharing of information among various stakeholders, taxation etc.
