Sebi steps up to safeguard MF investors

New Delhi: With an aim to protect mutual fund (MF) investors against misuse of their investments, markets regulator Sebi has proposed to discontinue usage of pool accounts by all platforms in transaction of such schemes.

Sebi said instances have come to light where client's funds and securities were diverted by trading or clearing member towards margin obligations or settlement obligations of itself or for some third party or for raising loan against shares on its own account.

Noting the scope of misuse of investments when mutual fund transactions were executed through intermediaries like stock brokers and clearing members and digital platforms provided by mutual fund distributors (MFDs) and investment advisors (IAs), Sebi said, asset management companies (AMCs) lose the sight of the source of funds as they receive the funds from pool or escrow accounts.

In order to address these challenges and to promote a secure investing environment in MF, Sebi has proposed that pooling of funds or units by stockbrokers, MFDs, IAs and other platforms may be discontinued for mutual fund transactions.

The move comes in the aftermath of Karvy Stock Broking episode, wherein the broker allegedly misused clients' securities to the tune of over Rs 2,000 crore.

Under the proposed framework, the exchanges are required to facilitate a more direct interface between clients and the clearing corporation, bypassing intermediaries.

In the same manner, for subscription and redemption, units are directly credited into and debited from the investor account respectively, the regulator suggested.