Discontinuation of usage of pool accounts for transactions in the units of Mutual Funds : Clarifications with respect to Circulars dated October 4, 2021.

March 15, 2022

To
All Recognized Stock Exchanges and Clearing Corporations
All Depositories
All Mutual Funds
All Asset Management Companies (‘AMCs’)
All Trustee Companies/ Boards of Trustees of Mutual Funds
All Registrar to an Issue and Share Transfer Agents (‘RTAs’)
Association of Mutual Funds in India (‘AMFI’)

Dear Sir / Madam,

1. 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 byMutual Fund Distributors (‘MFDs’), Investment Advisers (‘IAs’), Mutual Fund Utilities (‘MFU’), Channel Partners or any other service providers/ platforms, by whatsoever name
called. Similarly, SEBI, vide circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635 dated October 4, 2021, discontinued the pooling of funds and/ or units by stock brokers / clearing members in any manner for Mutual Fund transactions on Stock Exchange platforms, permitted vide SEBI circulars dated November 13, 2009 and dated November 9, 2010. Various other requirements related to the modalities of discontinuation of the pooling, measures to prevent third-party payments and to safeguard the interest of unitholders were also prescribed in the aforesaid Circulars. Both the said circulars come into effect from April 01, 2022.

2. On examination of various representations received from stakeholders and recommendations of the Mutual Fund Advisory Committee, for smooth implementation of the aforesaid circulars, following has been decided :

1. 2.1. Regarding transactions in units of Mutual Funds on Stock Exchange Platforms :
   1. 2.1.1.SEBI Circular SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635 dated October 4, 2021, inter alia, required that stock brokers / clearing members facilitating mutual fund transactions shall not accept payment through one-time mandate or issuance of mandates/ instruments in their name for mutual fund transactions. However, one-time mandates in favour of SEBI recognized Clearing Corporations may be accepted.
   3. 2.1.2.In this regard, it is clarified that:
      1. (i) Existing mandates being used for Mutual Fund transactions can continue to remain in the name of the stock brokers / clearing members, subject to Stock Exchanges/ Clearing Corporations ensuring that Payment Aggregators (“PA”) puts in place mechanisms wherein beneficiary of the mandate can only be an Approved Account (which shall only be the bank account of the Clearing Corporation) such that:
      2. a. PA shall directly credit the monies collected from the bank account of the investor only into an Approved Account; and
      3. b. PA shall not act on instructions of the stock brokers / clearing members to alter or modify the list of Approved Accounts and in no case the monies shall be credited to the bank account of the stock brokers / clearing members.
   4. (ii) With respect to processing mutual fund transactions under the above mentioned mandates, Stock Exchanges/ Clearing Corporations shall :
      1. a. ensure that PA has put in place adequate checks and balances, inter alia, to ensure such Approved Account is that of a Clearing Corporation;
      2. b. enter into an agreement with the concerned PA to ensure that only those mutual fund transactions are processed through them which are in compliance with this Circular read with the aforementioned Circular no. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/635 dated October 4, 2021; and
      3. c. have adequate checks and balances to monitor and govern the receipt of payments through the PA, including by way of third party audits (at least on an annual basis), to verify the compliance with these provisions which shall form part of the agreement with the PA.
      4. 2.1.3.Stock Exchanges/ Clearing Corporations shall provide investor grievance redressal / arbitration mechanism to clients against stock brokers/ clearing members (as is applicable for other segment of Stock Exchange transactions), in case of breach of these conditions or misuse of funds by the PA appointed by
      5. the stock brokers/ clearing members or by the stock brokers/clearing members with respect to mandates accepted in respect of Mutual Fund transactions.
      6. 2.1.4.On or after April 01, 2022, new mandates shall be accepted only in favour of SEBI recognized Clearing Corporations and those mandates shall exclusively be for subscriptions to units of Mutual Fund schemes and not for any other purpose.

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