sebi

Copy Page

Published on 14 April 2025

SEBI Circular: New Mutual Fund Regulations on Pool Accounts and Payments

Circular on Mutual Funds: Discontinuation of Pool Accounts and Other Measures

Introduction

This circular, released by the Securities and Exchange Board of India (SEBI) on October 4, 2021, outlines important regulations for mutual funds, emphasizing the discontinuation of pool accounts utilized by various entities for transactions involving mutual fund units. It aims to enhance transparency and protect the interests of investors.

A. Discontinuation of Pool Accounts by Non-Exchange Entities

1. Background

In previous circulars dated October 4, 2013, and October 19, 2016, SEBI permitted Mutual Fund Distributors (MFDs) and registered Investment Advisers (IAs) to use the infrastructure of recognized stock exchanges for their clients’ mutual fund transactions.

2. Observations

Certain platforms, based on agreements with Asset Management Companies (AMCs), have pooled client funds into a nodal account before transferring to AMCs.

3. New Regulations

After stakeholder discussions and recommendations from SEBI’s Mutual Fund Advisory Committee, SEBI has mandated the following for transactions through non-exchange platforms:

  • Service Agreements: AMCs must ensure that transactions can be executed only after establishing a service agreement with the service provider or platform.

  • Discontinuation of Intermediate Pooling:

    • The pooling of funds or units by MFDs, IAs, MFUs, or any other service providers for mutual fund transactions must cease. This does not apply to SEBI-registered Portfolio Managers compliant with SEBI (Portfolio Managers) Regulations, 2020.

4. Transaction Guidelines

AMCs must implement the following measures:

  • Direct Fund Transfers:

    • Subscription funds must move directly from the investor’s account to the mutual fund scheme account without pooling.
    • Redemption funds should go directly to the investor’s bank account from the mutual fund scheme account.

  • Unit Crediting:

    • For subscriptions, units must be transferred directly to the investor’s account by the mutual fund, without intermediate pooling.
    • For redemptions, units should move directly from the investor to the mutual fund.

  • Payment Restrictions:

    • MFDs, IAs, MFUs, and online platforms cannot accept payments through one-time mandates or in their name.
    • Investors must make cheque payments directly to the respective mutual fund schemes.

  • Payment Methods: AMCs are encouraged to provide multiple payment options through RBI-recognized methods for enhanced investor experience.

  • Guidelines from AMFI: The Association of Mutual Funds in India (AMFI), in conjunction with SEBI, will establish guidelines to prevent fund co-mingling at the level of Payment Aggregators involved in mutual fund transactions.

  • Information Sharing and Security:

    • Detailed transaction updates must be made accessible to all stakeholders involved, and communication must be securely system-generated.
    • Information sharing for direct plans shall align with SEBI’s clarifications issued on September 6, 2021, available on the AMFI website.

  • Cost Responsibility: Any costs associated with system developments to facilitate these changes should not be passed on to investors.

B. Measures Against Third-Party Payments

4. Compliance and Verification

To mitigate risks associated with third-party payments:

  • PMLA Compliance: The responsibility for complying with the Prevention of Money Laundering Act (PMLA) and preventing third-party payments lies with AMCs.

  • Traceability: AMCs must ensure that mutual fund payments are accepted through modes that establish clear traceability and audit trails without reliance on intermediary records. Investments via cash or e-wallets must comply with SEBI Circulars from September 13, 2012, May 22, 2014, and May 8, 2017.

  • Investor Verification: Payments should be channeled directly into the verified bank account of the investor associated with the specific folio, ensuring detailed verification is documented.

  • Authentication: For redemptions, Two-Factor Authentication for online transactions and signature verification for offline transactions are mandatory, with One-Time Passwords sent to the investor’s registered contact.

5. Liability for Unauthorized Transactions

AMCs are responsible for compensating losses to investors resulting from unauthorized transactions caused by fraud or negligence by the AMC or its affiliated service entities, except for unauthorized actions by Investment Advisors providing their services.

6. Enhancing Verification Controls

AMFI, in collaboration with SEBI, will issue guidelines to strengthen the verification process for essential details like bank account numbers, email addresses, and contact numbers. Compliance with these guidelines will be mandatory for all AMCs.

Conclusion

The regulations outlined in this circular will be effective from April 1, 2022. This measure aims to enhance investor protection and regulate the mutual funds market, ensuring transparency and compliance with applicable laws.

Share: