InvestorQ : I am confused about the new norms of giving mutual fund mandates to brokers? Can you tell me what the latest SEBI circular in this light really mean?
ishika Banerjee made post

I am confused about the new norms of giving mutual fund mandates to brokers? Can you tell me what the latest SEBI circular in this light really mean?

12 months ago

I think you are referring to the original SEBI circular of October 2021, which has been clarified in March this year pertaining to one-time mandates. In fact, the original October 2021 circular had stated that stock brokers and clearing members should not accept one-time mandates in their name for ongoing investments in mutual funds. This typically applied to SIPs. SEBI wanted to curb investors giving mandates to brokers or MF aggregators.

However, following protests from investors and brokers, SEBI has come out with important clarifications pertaining to transactions in units of mutual funds. These clarifications pertain to MF units transacted on the stock exchange platforms and also online platforms other than the recognized stock exchanges. To simplify things, SEBI has now permitted one-time mandates only in favour of clearing corporations registered with and recognized by SEBI.

Under the modified rules, applicable from April 2022, new mandates will be accepted only if it is favour of SEBI recognized Clearing Corporations. In addition, such mandates shall be exclusively transacting in MF units only. Sebi has additionally stipulated that new mandates can only be accepted in the name of the one-time mandate holders subject to fulfilment of and compliance with SEBI conditions.

What about existing mandates favouring brokers / clearing members? As per the clarification issued by SEBI, existing mandates for mutual fund transactions can continue as it is. The only condition is that clearing members must ensure that the payment aggregators (PA) put in place a fool proof mechanism. This mechanism must ensure that the beneficiary of the mandate can only be the approved bank account of the clearing corporation.

There is also the need for a comprehensive and thorough investor grievance redressal mechanism or arbitration mechanism for clients by brokers or mandate holders. SEBI has clarified that AMCs shall be liable to unit holders for breach of any conditions or misuse of funds by payment aggregator (PA) or even one-time mandate (OTM) holders with respect to mandates Mutual Fund transactions.

There are some additional conditions in case of redemption of units. The 2-factor authentication model must be used for online transactions while signature verification will be used for offline transactions. There must necessarily be one step of sending password to registered mobile or email. In the case of demat redemption, the existing authentication process laid down by the concerned depositories must be adhered to.