SEBI guideline

Nomination is an important aspect while you plan for any of your financial investments.

This time market regulator SEBI has been emphasising the same for the mutual fund investors. SEBI has come up with new regulation for mutual fund customers to comply and put in timeline for the same.

SEBI in its new directive has written to the mutual fund houses (AMCs) asking them to collect nomination from their customers. Those customers who do not wish to nominate, they have to provide exclusive written consent that they want to opt out of nomination. This is applicable for all the existing customers/investors who have not provided nomination in their mutual fund portfolio. This whole process has to be completed by 31st March 2023 as per the regulator.

SEBI has also made these two options mandatory for new customers from 1st August 2022, that means new customers also have to provide nominee details or provide consent to opt out from nomination.

In case MF customers fail to comply with this guideline (that means neither they provide nominee details nor give written consent to opt out of nomination), then from 1st April 2023 their withdrawal requests will not be processed by the AMCs unless they comply this guideline.

The nominations can be submitted physically or electronically via online.

Banking regulator RBI has already implemented such nomination process in banking investments and with SEBI pushing the industry to follow the new process will move in favour of the investors who often ignore nomination.

You can check all your mutual fund portfolio today and nominate in case you have missed it out before.

Mutual Fund distributors/intermediaries used to collect your funds in an interim pool account and then channelize the same to Mutual Fund houses/ exchange. However, to provide more convenient and transparency to mutual fund investors, SEBI in its circular dated 4^th October 2021 has directed that, there will be “discontinuation of usage of pool accounts for transactions in units of Mutual Funds on the Stock Exchange Platforms”.

By this circular, intermediaries will not be able to accept payments/transactions in their name or in their pool account. SEBI wants that, investors money should go directly from the investor’s account to that of the mutual fund company account. To comply with the new directive, intermediaries who carry out mutual funds transactions have to put in new process to ensure that funds pay-in are directly received by the clearing corporation from the investor’s account and in case of funds pay-out it directly goes to the investors account. In short, SEBI wants mutual funds money Pay-in/ pay-out should not be handled by the stock brokers/clearing members. This change in process will be applicable for both SIP and lumpsum mutual fund investments.

Market regulator SEBI has initially asked AMCs, recognised Stock Exchanges, Depositories and recognised Clearing Corporations to make necessary changes and implement system requirements to comply with the circular by 1^st April 2022. Recently SEBI has further extended the timeline to comply till 1^st July 2022 on request of various industry players but in the meantime to build pressure to comply with the new directive the regulator has put a stop on any NFO launch for next three months.

As the industry is developing new process and system changes for this initiative, all mutual fund investors will receive communication from their mutual fund distributor of the new process that they have planned for future. Read the communication that you receive and follow the new process. If you have running SIP or you have scheduled lumpsum purchase, then you may have to adhere to the new changes that your distributor is implementing.

Industry is looking forward for e-NACH registration from mutual fund investors as a solution to this new directive.

You can refer the details of the SEBI circular at the below link.

https://www.sebi.gov.in/legal/circulars/oct-2021/discontinuation-of-usage-of-pool-accounts-for-transactions-in-units-of-mutual-funds-on-the-stock-exchange-platforms_53104.html.

SEBI’s new directive on Mutual Fund nomination

Understanding SEBI’s new guideline on routing your Mutual Fund money.