Sebi may set common MF transaction norms to push ease of doing business

The efforts are expected to make life easier for investors and boost mutual fund penetration

The Securities and Exchange Board of India (Sebi) is looking to bring in uniformity in the way transactions are done across asset management companies (AMCs) in a bid to make things simpler for investors and boost retail participation in mutual funds (MFs).
 

The regulator is working on a template that would standardise processes and documents required for appointing or changing nominees, a bank account inclusion or change, a minor turning a major, a change of guardian, transmitting MF units to kith and kin, and changing email/mobile, among other things.
 

Investment application and redemption forms are also sought to be made uniform across AMCs. 
 

The regulator wants to introduce a unique mutual fund ID, which will consolidate and bring an investor’s folios and investments across AMCs under one roof, doing away with the need for quoting and remembering various folio numbers. 
 

Folios are like bank account numbers used to identify holdings with a particular AMC. The same folio number can be used to make multiple purchases only within the same fund house.
 

The efforts are part of Sebi’s “ease of doing business” initiative, and will especially help direct investors who do not have distributors to assist them. 
 

The MF industry could be the first in the capital market ecosystem to adopt standardisation in this manner. It remains to be seen whether the regulator will effect these changes in phases or at one go, or whether AMCs will still enjoy some discretion for certain kinds of transactions. 
 

“There are multiple operational processes that require different documents across different AMCs. One AMC may ask an investor for one set of documents and another AMC for another, for the same transaction or operation. These processes are now sought to be standardised,” said a senior fund official. 
 

Change or inclusion of bank account, for instance, requires investors to submit details such as the bank name, branch and IFSC Code. Documents to be provided could include an attested copy of the latest bank statement or bank passbook, or a cancelled original cheque of the new bank. 
 

Additional documents could be required based on the fund house's internal risk management policies.
 

“Some AMCs ask for proof for the old bank account along with the new bank account. Others look only at the new bank proof. What constitutes proof for a bank account itself differs across AMCs. Some AMCs will be comfortable with online submissions, others will verify documents offline as well,” said another senior fund official.
 

The regulator could also look at a mechanism to ensure changes done with a particular KYC Registration Agency (KRA) are reflected across AMCs. “Suppose an investor updates his or her email/mobile with a KRA, the change should ideally be automatically updated across AMCs. But that does not typically happen, and investors have to approach the AMCs separately or use PAN-based updating services with R&Ts (registrar and transfer) for each one to bring about the change,” said Suresh Sadagopan, a financial planner. 
 

KRAs maintain KYC records of investors centrally, on behalf of capital market intermediaries registered with Sebi, eliminating the need to repeat KYC. 
 

To be sure, some degree of standardisation already exists in the industry. For instance, in 2012, the Association of Mutual Funds in India issued common guidelines for transmitting mutual fund units, which is done after the death of a unit holder. Under the existing guidelines, a notarised copy of a probated will, legal heir certificate, succession certificate or letter of administration has to be furnished only if the transmission amount is more than Rs 2 lakh.
 

Transmission processes, however, still differ, depending on the level of risk-based practices adopted by AMCs. For instance, some AMCs may ask for the above-mentioned documents even if the transmission amount is Rs 2 lakh and below. “This may lead to inconvenience for genuine claimants and the regulator is looking at how to further standardise the requirement specifications,” said the second person quoted above. 
 

Despite the push and the record addition in folios in the past few years, the penetration of mutual funds in the country remains low, especially when compared to the number of bank accounts. The sweeping reforms could improve transacting through MFs manifold.