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How does the SEBI ban on pool accounts affect your mutual fund investments?

Posted on 31 Mar 2022 • Updated on: 05 Jul 2022
Author: Sayan Sircar

Tags: News

5 mins read
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Explained: how a recent SEBI rule change affects how you will be investing in mutual funds post 1st-Jul-2022.

How does the SEBI ban on pool accounts affect your mutual fund investments?

Originally published: 31-Mar-2022

Updated: 31-Mar-2022 - SEBI has extended the timeline from 01-Apr-22 to 01-July-22

Updated: 05-Jul-2022 - updated with options for investing

What is the news?

SEBI, vide circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634 dated October 4, 2021, discontinued intermediate pooling of funds and/or units in Mutual Fund transactions - SEBI 15Mar22 circular

SEBI has banned the use of pool accounts for mutual fund investments. Instead, investors must invest in a way where their money goes directly from their bank account to the AMC account for buying MF and vice versa for selling MF. You can no longer use an intermediary pool account or wallet used by some platforms.

Sources:

SEBI 04Oct2021 circular on Discontinuation of usage of pool accounts by entities including online platforms other than stock exchanges for transactions in the units of Mutual Funds
SEBI 15Mar2022 circular

Before the applicability of the circular, these are the modes of operation for buying and selling MF:

Purchase via pool account:
- Step 1: Investor’s bank account —> Platform Pool Account via NACH, Net-banking UPI, RTGS etc
- Step 2: Money goes from Platform Pool Account —> AMC bank account
- Step 3: Units are allocated once the AMC account is credited
Purchase without pool account:
- Step 1: Money goes from investor’s bank account —> AMC bank account via NACH, Net-banking, UPI etc
- Step 2: Units are allocated once the AMC account is credited
On redemption, there were two cases:
- Redeem to wallet: In some cases (like Groww Wallet), the money on redemption may come back to the pool account to be used for other purchases or later sent back to the investor’s bank account
- Direct redemption to the bank: In all other cases, the money comes back directly to the investors’ bank.

After 1st July 2022, only these modes of operation i.e. “Purchase without pool account” and “Direct redemption to bank” are allowed. This is a good thing. This effectively means that your money directly travels between your bank account and AMC account in either case for both buys and sells. The role of the platform is now reduced to passing instructions between the investor and the AMC.

There will not be any impact on investors who were not using any platform with a pool account. Hence platforms like myCAMS and AMC websites will not be affected.

What should investors do now?

We explain a few cases as described on the respective platform site. Investors should contact the respective platform customer support to understand more.

Groww

As explained in their blog post, Groww balance can no longer used for MF purchases. Instead, the investor’s bank account will be debited and the AMC’s account will be credited directly without touching the Groww wallet for both SIP and lump sum. Existing SIP instructions via wallet will fail.

Zerodha Coin

As explained on tradingqna, funds in Zerodha trading account cannot be used for MF. For existing SIPs, investors will be given a payment link on the SIP date. New SIPS will be via bank mandates only. Lump sum investments will work in the usual way via Net-banking and other options.

Updated statement: link

MFUtilities

MFUtilities emails on 21 and 23 March to platform users state that:

There will be no impact on
- existing and new mandates registered under PayEezz
- Net-banking and UPI except that there will not be any real-time credit settlement
MFU is
- currently working closely with Banks / Payment Aggregators to enable NEFT / RTGS / IMPS payment mode as soon as possible
- deliberating for an alternative process to handle “Cheque/Physical Instruments” as the same cannot be favouring “MFU Escrow Account”
MFU will also temporarily disable NEFT / RTGS / IMPS and Cheque / Physical Instruments from 31st March 2022 post-market hours.

Paytm Money

Paytm money users have been advised (source) to transact in Mutual funds via a Demat account.

Bank/AMC portals/Other platforms not mentioned above

These portals should continue to work the same way as before since pooling was not an option before. Therefore, there should be no change in the way old, new SIPs and lump sum investments will happen as usual.

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Also read
Retirement Portfolio Strategy: How to Allocate Equity, Debt, and Cash Buckets for Maximum Security and Growth

What should investors do now?

Investors can use the following options to seamlessly transact in mutual funds going forward:

AMC website i.e. the mutual fund company’s site directly
mfcentral.com which is a new portal owned by the RTAs CAMS and Karvy
MFUtilties.com

The two options Mfcentral and Mfutilities have all funds. As always, only invest in the DIRECT GROWTH plan of any mutual fund.

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