Explained: SEBI's new rules on mutual fund investments through pool accounts from July 1

The Securities and Exchange Board of India’s (SEBI) regulation banning the use of brokers’ pool accounts for mutual fund transactions will come into effect from July 1 after a deadline extension.

In a circular issued by SEBI last year, it prohibited the pooling of funds for mutual funds transactions from April 1.

However, the deadline was later extended to July 1 to facilitate an efficient technology overhaul and its smooth transition to serve the growing investor needs after many complained of failing SIP transactions.

From July 1, all non-exchange transaction platforms including mutual fund transactions utility have already implemented this strategy. There have been some glitches and issues, but the situation is improving, and this may become error-free in the long run.

A pool account is a kind of electronic wallet facility provided by the brokers. It is essentially a bank account where the broker pools money from the individual investors to buy MF units in a particular scheme.

From July 1, mutual fund investment transactions cannot be made through a pool account. As per the SEBI regulation, the money must go from the investor's bank account to the bank account of the mutual fund house directly.

SEBI has ordered mutual fund firms to make sure that no mutual fund distributor, online platform, stockbroker, or investment advisor accumulates money from investors in a bank account (pool account) and then transfers it to the fund house to buy units for investors. This is being implemented to guarantee that the funds are not misappropriated.

Regarding the new rules, mutual fund investors and distributors have raised some issues such as delayed confirmations about allotment of units, inability to pay using cheque, RTGS and NEFT, and SIP transaction failures among others. However, these problems are expected to be resolved shortly.

The above-mentioned problems can cause trouble for MF investors. However, MF Utilities, which is an industry-promoted, widely used platform for transacting units has clarified that the registrars and transfer agents systems are now better equipped, and the situation has improved. There is no delay in the allotment of units where the rules are followed. Checks with distributors also indicate that the delay in confirmation of transactions was of up to six days earlier this month which has come down to a day or two, according to a report by Moneycontrol. 

For MF investors using SIP (Systematic Investment Plan), all the SIPs will stop where your broker used to transfer funds from your broking account balance to the mutual fund house as per the new regulation.

SIP investors will need to sign up for fresh National Automated Clearing House (NACH) mandates in favour of the clearing corporation, which can be done online.

Also, investors need to make sure that their details such as their mobile number and email are correct at the fund folio level. This is essential as the regulator has mandated double factor authentication (2FA) using a one-time password (OTP), sent to the email and mobile phone number of the investor.