The Indian mutual fund industry is growing and improving every year. Market regulator Securities and Exchange Board of India (SEBI) has introduced several initiatives in the last few months to make mutual fund investments safer and more transparent.
In the year Here is a summary of the events that have taken place so far in 2022.
Two-factor authentication for transactions in mutual funds
SEBI’s Two-Factor Authentication (2FA) Mutual Fund Redemption Circular released on March 31, 2022. Users authenticate themselves using two different authentication methods in a two-step security system called two-factor authentication (2FA). Username, password, security questions, OTP, fingerprint or face ID can be used as authentication conditions.
A One Time Password (OTP) will be sent to unit holders via email or AMC registered phone number for the following online transactions: Redemption, Switch, Systematic Transfer Plan (STP) registration and Systematic Withdrawal Plan (SWP). This is one reason for the two-factor authentication (2FA) system.
Prior to this announcement, two-factor authentication was required for all Asset Management Companies (AMCs) to verify redemption transactions.
Capital market regulator SEBI has issued a circular on Friday, September 30, 2022, announcing the expansion of two-step verification for mutual fund class registrations to further protect the interests of investors. On April 1, 2023, the new framework will come into effect.
SEBI has set a timeline for portfolio rebalancing to ensure consistency among mutual funds.
According to SEBI, the rebalancing period will be applicable if passive violations result in deviation from the required asset allocation specified in the Scheme Information Document (SID).
Passive violations are usually caused by the fund house’s omissions and commissions.
All mutual fund schemes, except index funds and exchange-traded funds (ETFs), must rebalance within 30 business days.
If the portfolio of the schemes is not balanced within the required time frame, a written reason should be submitted to the Investment Committee detailing the steps taken to balance the portfolio.
If the Investment Committee so chooses, the deadline may be extended by 60 business days from the expiration of the required consideration period.
AMCs are not allowed to launch any new schemes until the scheme portfolio is adjusted. Further, investors exiting these schemes are not allowed to pay any exit load.
Standardization of candidate procedures
A circular from SEBI has been released to formalize procedures for appointment in mutual funds.
SEBI has asked mutual fund companies to set a deadline of March 31, 2023 for adding nominations or opting out of nominations for existing investors. If this requirement is not followed, transactions for sale of Folio will be blocked.
Investment limit based on credit rating of debt paper
AMCs are directed to limit their investment in AAA-rated debt and money market instruments from a single issuer to a maximum of 10% of the scheme’s net asset value (NAV). For AA-rated issuers, plans must limit their exposure to 8%, but for securities rated below A, the cut-off point is 6%.
AMCs are penalized for missing dividends or redemption payments
SEBI has directed AMCs to pay dividend within seven working days from the date of registration in the circular.
The regulator has revised the deadlines for remittance of dividends and redemption proceeds to unitholders of mutual funds. Fund companies have to pay investors 15% interest per annum on late payments.
HSBC acquires AMC L&T mutual fund
HSBC has fully acquired asset management company L&T Mutual Fund. According to L&T Finance Holdings, HSBC paid AMC. ₹3,485 crores.
The initial announcement of the $425 million deal came in December 2021 and was approved by SEBI in October this year.
When one fund house is sold or merged with another, similar schemes from both the fund houses are frequently merged. Fund houses are required to do this as each of the listed categories is limited to one fund within a fund house. Kailash Kulkarni and Ravi Menon will share leadership responsibilities as CEOs of this merged company.
Before the merger, Kailash Kulkarni headed L&T Mutual Fund, and Ravi Menon headed HSBC Mutual Fund.
Sriram Ramanathan and Venugopal Mangat will hold the position of Chief Investment Officer (Debt) and Chief Investment Officer (Equity), respectively. Previously, Mr. Mangat and Mr. Ramanathan served as Head of Fixed Income and Head of Equity at L&T Mutual Fund.
IDFC MF will now be Bandhan Mutual Fund.
After the market regulator approved the transfer of ownership, IDFC Mutual Fund is now known as Bandin Mutual Fund.
IDFC Mutual Fund was acquired by a group comprising Bandhan Financial Holdings Limited (BFHL), GIC and ChrysCapital.
After the proposed transfer, BFHL will own around 60% of IDFC AMC, while GIC and ChrysCapital will hold around 20% each.
As a result, Bandin Financial Holdings Limited (BFHL) is now the sponsor of the newly acquired mutual fund.
A press release from the fund stated that the current management and investment operations team will continue. Therefore, this expropriation will not affect the management of the fund.
Padmaja Choudhury is a freelance financial content writer. She has a total of six years of experience in mutual funds and personal finance with her areas of focus.
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First published: December 21, 2022, 08:18 am IST