Sebi’s New Online Mutual Fund Transactions Guideline Will Not Impact Your Demat Transactions

According to a new guideline by the Securities and Exchange Board of India (Sebi), your mobile number will now have to be shared with the backend payment service providers for verification of source bank account. In addition, your mobile number will also be used for two-factor authentication, which is now mandatory for online mutual fund redemption, switches, systematic transfer, and systematic withdrawal.

Several users had complained on various social media groups and had sought help when they saw their bank statement flooded with names of different payment service providers, and when their email and SMS inbox too was full of messages and mails about the same. 

According to Tejas Khoday, CEO, Fyers, a stockbroking company, this is part of the regulatory changes brought by Sebi and the Association of Mutual Funds Of India (Amfi) to “bring about regulatory changes for retail investors, and to improve transparency and reduce instances of fraud.“

“This new guideline is yet another intervention in that direction and will help in safeguarding retail investor’s investments,” Khoday says. 

But will these rules impact your online mutual fund holdings? Also, how do you update your mobile numbers for mutual fund transactions in other online applications? Read on to find out more details.

Mutual Funds In Demat

There are many mutual fund buying platforms like Fyers Direct, Zerodha Coin, Angel BEE, and others, wherein investors open a demat account and invest in mutual funds. However, it is the Bombay Stock Exchange’s BSE Star MF platform or National Stock Exchange’s Mutual Fund Service System (MFSS) that processes all the mutual fund orders.

Earlier, stock brokers used to ask for Power of Attorney (POA) signed agreements while opening up a demat account for offering online transactions. But now, due to alternative authentication processes like the transaction pin (TPIN) feature being implemented by depositories (CDSL, NSDL), the POA document is no longer needed.
 
Adds Khoday: “For units held in demat form, a well-established process of authentication as laid down by the depositories earlier shall be followed. There would be no changes (due to the new Sebi guideline) for demat-based MF transactions, as they are held in non-POA accounts, and the sell transactions have to be authorised by the client using TPIN. This prevents unauthorised liquidation by brokerages.” 

Mutual Fund In RTA Mode Online

If you have, however, invested in mutual funds through apps like Groww, Paytm Money, and others, and did not open a demat account with them, then you have actually invested in mutual funds via the registrar and transfer agent (RTA) online mode. Then, these Sebi guidelines will impact your transactions.

Regarding how the new guideline will work when a user requests for mutual fund redemption Swapnil Bhaskar, Head of Strategy, Niyo, an neobank said, "Whenever a user is requesting for redemption, an OTP will be triggered to their email and mobile number that is registered in folios with the mutual fund companies. Users will have to verify the OTP to confirm the redemption."

Axis Bank has also sent an email in this regard to its customers. It said: “As per the new Sebi guidelines, Circular no.SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/41, effective 01-06-2022, we will be sharing your account number with our payment service provider for smooth and seamless payment of your mutual fund SIPs. Please be assured that your details are safe and secured. If you do not wish to do so, then kindly visit Axis Mobile/Internet Banking and deregister your mutual funds.”

According to Rachit Chawla, founder and CEO, Finway, a diversified financial services company, the Sebi has laid out these security guidelines for the protection of the investors. 

“The mobile number sharing guideline was made so that at the payment level, the source bank account can be verified by payment service providers so that only the investor’s registered bank account is being used for transactions,” says Chawla.

How To Update Your Mobile Number?

There are three ways in which you can update your mobile number. 

Investors will have to update the mobile number, the same which is updated in the bank account, and link it to the mutual fund folio.

“In this manner, they can receive the OTP, which is now mandatory to process an online transaction. In case the OTP verification is not done due to mismatch in the mobile number in which the OTP is sent and the mobile number in the AMC record, the transaction will not be processed,” says Chawla.

Alternatively, an investor can visit the mutual fund’s registered office and fill up an application form authorising the mutual fund to enable online transactions in your account. One can also update his/her mobile number in their records.

In addition, every mutual fund investor has to complete the KYC norms; otherwise, they cannot invest in their mutual fund schemes. So, if the mobile number in your KYC records and mutual fund investments are different, then have to update the mobile number in your KYC records. However, this is a very time-consuming process and could take days, if not weeks, for the changes to be implemented.

Lastly, you can try to find out which RTA handles your mutual fund records. For CAMS, one can visit here.

For Karvy, the website is this. One can also download Annexure1 form and submit the same to their nearest registered office. 

Alternatively, one can visit the nearest Karvy branches or email them at reachus@kfintech.com for details.