Asset management companies will not be able to launch new fund offers for the next three months, as the markets regulator is keen that the industry complies with its norms on pooling of funds by intermediaries and distributors. Currently, brokers and other intermediaries that facilitate investments in mutual funds tend to pool money into their account before transferring it to the clearing corporation or the asset management companies.
The Securities and Exchange Board of India (Sebi) had directed the industry to end this practice of pooling investor monies in October 2021, so that money goes directly from the investor’s account to that of the mutual funds. The industry has sought time to comply with this and the deadline for the same has been extended twice already.
The markets regulator on Thursday extended the deadline for the implementation of the same yet again. However, in order to encourage the industry, intermediaries, clearing corporations and payment gateways to focus on getting this done without any delay, Sebi has directed fund houses not to launch any new fund offers.
A Balasubramanian, chairman of Association of Mutual Funds in India and CEO of Aditya Birla Sun Life AMC said, “There is a methodology around pooling of money by intermediaries, which needs to change. The regulator wants the system to be more efficient in the interest of the industry at large, which requires systems to change completely. Sebi wants industry to focus its energies on this. Anyway, a majority of flows come to industry from existing schemes, so it is not a deterrent.”
In its October circular, Sebi had said the intermediaries involved in mutual funds transactions would have to put necessary mechanisms in place to ensure that funds pay-in would be directly received by the clearing corporation from the investor account and funds pay-out also would be directly made to the investor account. The regulator said: “Pay-in / pay-out of funds shall not be handled by the stock brokers/clearing members.”
Banks, stock exchanges, payment gateways and clearing corporations need to work with the asset management companies on a war-footing to implement this change, as it requires a complete overhaul in the the way the technology platforms, payment gateways and transaction platforms are designed. With new fund offers being put on hold, industry will focus its energies on resolving the issue.