Circular on Mutual Funds
Summary
This circular mandates the discontinuation of pool accounts by mutual fund service providers to prevent the co-mingling of investor funds. It requires direct fund and unit transfers between investors and mutual fund schemes, prohibiting intermediate pooling by distributors or platforms. Additionally, it imposes strict liability on Asset Management Companies for losses arising from unauthorized transactions due to fraud or negligence.
Text
AMCs shall ensure that the transactions (financial/ non-financial) can be executed only if there is a service agreement between the AMC and the service provider / platform.
AMCs shall ensure that intermediate pooling of funds and/or units in any manner by MFDs, IAs, MFU, channel partners or any other service providers/ platforms... are discontinued for MF transactions.
For subscription, funds should be credited directly from the investors’ account into the MF scheme account without any intermediate pooling.
For redemption, funds should be directly credited to the investor’s registered bank account from the MF scheme account without any intermediate pooling.
MFDs / IAs, MFU, channel partners and other entities... facilitating MF transactions shall not accept payment through one-time mandate or issuance of mandates/ instruments in their name for mutual fund transactions.
AMFI, in consultation with SEBI, shall issue guidelines for AMCs with regard to mitigating risks of co-mingling of funds at the level of Payment Aggregators/Payment Gateways involved in mutual fund transactions.
Detailed information at each stage of the relevant transaction... shall be made available at the same time to all the stakeholders involved... Only payment related information required to ensure reconciliation and traceability shall be made available to the Payment Aggregators.
The onus of compliance with PMLA provisions and not permitting usage of third party bank account payments continues to lie with the AMCs.
AMCs shall make sure that payment for MF transactions are accepted through only such modes where independent traceability of end investor can be ensured and source account details are available as audit trail.
AMCs shall ensure that payment is credited directly to the registered and verified bank account of the investor mapped with the concerned folio, after due verification.
In case of redemption of units, Two-Factor Authentication (for online transactions) and signature method (for offline transactions) shall be used to authenticate transactions.
AMC would be liable to compensate for losses, if any, occurred to a unit holder, where unauthorised transaction(s) occur(s) in unit holder’s folio due to fraud/ negligence/ deficiency on the part of the AMC... irrespective of whether or not the fraud is reported by the unit holder.
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Source: SecMarx — Circular on Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.