Pause in mutual fund NFO until July 1 after 'pool account' rules kick in

The move, directed by Sebi, is to ensure "undivided attention" for proper execution of the new norms

The Rs 39-trillion domestic mutual fund industry will have to slam the brakes on new scheme launches, until the rules pertaining to pool accounts get implemented.

The Securities and Exchange Board of India (Sebi) has written to mutual fund industry body Association of Mutual Funds of India (Amfi), directing asset management companies (AMCs) to launch new fund offers (NFOs) only after the circulars on pool accounts are implemented. This is to ensure “undivided attention” for the proper execution of the new norms.

NFOs have turned out to be a big source of asset mobilisation for the industry. For instance, the NFO of SBI Balanced Advantage Fund garnered a record Rs 14,691 crore in August and last month, the NFO of SBI Multicap Fund mobilised Rs 8,095 crore.

According to Amfi’s website, four NFOs are open for subscription currently, and industry players said these won’t be impacted.

But the move is expected to impact several launches that fund houses had lined up for April. HDFC MF on Friday said its fixed maturity plan (scheduled to remain open between April 13 and April 19) “stands withdrawn”.

In October 2021, the market regulator came out with a framework, directing all intermediaries to stop the pooling of client funds. 

Instead, funds required for buying securities or mutual funds (MF) units would have to move directly from the client’s bank account to the clearing corporation. This, according to Sebi, would prevent the possible misuse of investors’ funds.

Further, Sebi asked the MF industry to put in place a two-factor authentication (2FA) system for the redemption of MF units. Under this, units could be redeemed only after providing the one-time password (OTP) authentication sent via SMS, and an app password.

Discontinuation of pooling and 2FA for redemptions are aimed at preventing third-party payments, as well as safeguarding the interest of unitholders. The market regulator earlier had given the MF industry six months to implement the changes. But ahead of the April 1 deadline, Amfi sought additional time until July 1 to implement the October 2021 circular. In fact, the proposal to halt NFOs was put forth by the industry itself to bide more time from Sebi.

“You have also represented that significant effort and high priority are required from your side to implement the aforesaid circulars and that approvals of new schemes may be kept on hold to ensure undivided attention to the proper execution of this project in coordination with a large number of stakeholders,” Sebi said in a communication to Amfi.