Circular on Mutual Funds

December 10, 2021

All Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)

Sir / Madam,

1. 1. Usage of pool accounts by Mutual Funds

1.1 In terms of Clause (5) of the Fifth Schedule of SEBI (Mutual Funds) Regulations, 1996 (hereinafter referred as “MF Regulations”), it is stipulated that:

“Trustees and asset management companies shall ensure that the assets and liabilities of each scheme are segregated and ring-fenced from other schemes of the mutual fund; and bank accounts and securities accounts of each scheme are segregated and ring-fenced.”

1.2 In this regard, representations were received from the industry highlighting the instances where pool accounts are used, as certain transactions are carried out only at Mutual Fund level for operational ease and due to certain regulatory requirements. However, the securities or funds held in the pool accounts at Mutual Fund level are duly segregated scheme-wise and appropriately reflected in the books of the respective schemes, at the end of day.

1.3 The issue was discussed in Mutual Funds Advisory Committee (MFAC). Based on the recommendations of MFAC, the following has been decided:

1. 1.3.1 Mutual Funds may use pool accounts, only for such transactions which are executed at mutual fund level owing to certain operational and regulatory requirements, subject to the following conditions:
   2. a. AMCs shall have internal policies approved by the Board of AMC and Trustees to ensure that adequate operational processes and internal controls are in place to segregate and ring-fence the assets and liabilities of each scheme along with segregation and ring-fencing of securities & bank accounts.
   4. b. In such cases, at the end of day, the assets and liabilities of each scheme shall be segregated and ring-fenced from other schemes of the mutual fund; and bank accounts and securities accounts of each scheme shall be segregated and ring-fenced. The pool accounts for both securities and funds should have nil balance at end of the day.
   6. Provided that if the funds lying in the pool bank account of the mutual fund are not identified, due to the reasons beyond the control of the AMC, the same shall be transferred to the respective scheme account not later than one business day from the day such transactions are identified.
   8. c. At no point of time, the securities or funds of one schemes shall be used for other scheme(s) and there shall be any conflict of interest amongst investors of various schemes.
   10. d. The responsibility to ensure segregation and ring-fencing of the assets and liabilities of each scheme along with segregation and ringfencing of bank accounts & securities accounts shall lie with the Board of AMC and Trustees. Trustees in their Half Yearly Trustee Report (HYTR) to SEBI shall confirm that the assets and liabilities of each scheme along with their bank accounts & securities accounts are segregated and ring-fenced on daily basis, except the unidentified transactions of funds as mentioned in sub-para (b) above, during the half-year period.
   12. e. The whole mechanism shall be audited on half yearly basis by the auditor appointed by the trustees.

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