The Securities and Exchange Board of India (Sebi), India’s capital markets regulator, has put restrictions on the launch of mutual fund schemes until July 1.
Sebi has barred new mutual fund schemes until pool accounts are phased out, according to a letter sent to the industry body Association of Mutual Funds of India (AMFI) late last night.
Mutual fund houses have been asked by the markets watchdog to ensure that no distributor, online platform, stockbroker, or investment advisor pools investors’ money in a bank account and then transfer it to the fund house to purchase units of schemes for those investors.
This is to ensure that the funds are not misappropriated. The mutual fund industry has until April 1, 2022, to comply with the regulator’s request.
AMFI had requested a postponement of the deadline from Sebi late last month, citing the fact that the broking and distribution industries were still in the process of implementing alternative mechanisms.
While the MF industry was given temporary relief until July 1, Sebi made it clear in its letter to AMFI that it had given mutual funds “sufficient time” to implement its October 2021 order on pool accounts, and that “wide consultations were held with all stakeholders, including AMFI, before issuing the circulars dated October 2021.”
The decision was made in the best interests of unitholders, according to Sebi. The regulator also reminded AMFI of its earlier commitment to put all new schemes on hold until the issue is resolved.
Sebi’s New Rules
The round on pooled accounts is intended to address the possibility of a dealer diverting money intended for mutual funds into its personal account and then defaulting.
This risk can be confronted by sending money directly to the fund home or stock exchange.
For mutual fund redemption, for example, the two-issue authentication rule may imply that the client receives a second OTP (One Time Password).
This is intended to reduce the likelihood of fraud in the industry.
Similarly, supply account verification aims to eliminate the possibility of cash laundering in mutual fund investments.
Security and Exchange Board of India
The Securities and Exchange Board of India (SEBI) is a statutory body and market regulator that oversees India’s securities market.
Sebi’s primary responsibilities include safeguarding the interests of securities investors as well as promoting and regulating the securities market. Sebi is governed by a board of directors.
A Chairman and several other full-time and part-time members make up the board. The union government appoints the chairman.
Two members from the finance ministry, one from the Reserve Bank of India, and five more members have been nominated by the Centre.
Sebi’s headquarters are in Mumbai, and regional offices can be found in Ahmedabad, Kolkata, Chennai, and Delhi.
Sebi regulates stock exchange activities, protects shareholders’ rights, and ensures the safety of their investments. It also aims to combat fraud by harmonising its statutory regulations and encouraging businesses to self-regulate.
Apart from the aforementioned functions, Sebi provides a marketplace where issuers can properly raise finance. It also ensures investor safety and the provision of precise and accurate information.
The Securities and Exchange Commission examines stock trading and protects the securities market from fraud. Stockbrokers and sub-stockbrokers are under its control. It provides investors with market education in order to improve their knowledge.
Before Sebi, the regulatory authority was the Controller of Capital Issues, which had authority under the Capital Issues (Control) Act of 1947.
The Securities and Exchange Board of India was established in 1988 to regulate India’s capital markets. It began as a non-statutory body with no statutory authority. It was given autonomous and statutory powers following the passage of the Sebi Act by Parliament in 1992.