The Securities and Exchange Board of India (SEBI) has tightened the norms for mutual fund investments by minors and has also proposed to stop the usage of pool accounts for mutual fund transactions.
In a circular issued on Tuesday, the capital markets regulator said that if the mutual fund investments were being made by a minor, then the investment has to be made either from the minor’s account or a joint account of the minor.
“Payment for investment by means of cheque, demand draft or any other mode shall be accepted from the bank account of the minor or from a joint account of the minor with the guardian only,” said the circular.
Further, once the minor attains the status of a major, the individual will have to provide the complete KYC — Know Your Client — details of the updated bank account and no transactions will be allowed till the status of the minor is changed to major.
For existing folios, the fund houses will have to insist upon a change of pay-out bank mandate before redemption is processed, said the circular.
In a separate discussion paper, the watchdog has proposed to discontinue the practice of pool accounts that is typically used by intermediaries like stock brokers and digital platforms for making mutual fund investments on behalf of their clients.
Karvy issue
Interestingly, the proposal stems from the recent issue related to Karvy Stock Broking wherein it was alleged that the broking firm had pledged client securities to raise funds from banks and non-banking financial companies.
“In the recent past, instances have come to light where clients’ funds/securities were diverted or mis-utilised by trading member/clearing member toward margin obligations or settlement obligations of itself or for some third party or for raising loan against shares on its own account...,” said the discussion paper.
The capital markets regulator has proposed that exchanges could put in place a more direct interface that could bypass the intermediaries.
“For transactions on exchange platforms through stock broker(s), exchanges shall put necessary systems in place to ensure that pay-in is directly received by recognised clearing corporation from investor’s bank account and pay-out is directly made to investor’s bank account from recognised clearing corporation’s account,” said the discussion paper.
