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Brokers to have more say on MF transactions

SEBI makes it mandatory to route allotment of units, payment of proceeds through brokers

Giving in to the broking community’s long-pending demand, the Securities and Exchange Board of India (SEBI) on Tuesday said all redemptions and allotment of units of mutual funds sold on stock exchanges should be done through broker’s pool account.

At present, units and redeemed money directly go to investors without the involvement of brokers.
In a circular issued on Tuesday, SEBI said investors should receive redemption amount (if units are redeemed) and units (if units are purchased) through broker/clearing member’s pool account.

“Mutual Funds would pay proceeds to the broker (in case of redemption) and broker in turn to the respective investor and similarly units should be credited by fund houses into broker’s (in case of purchase) and broker member in turn to the respective investor,”   the circular said.

Payment of redemption proceeds to and crediting units into the broker by fund houses should discharge the latter of their obligation of payment and allotment of units to individual investors, it observed.

SEBI further said that exchanges and depositories should provide investor grievance handling mechanism to the extent they relate to disputes between their respective regulated entity and their client and should also monitor the compliance of code of conduct for intermediaries of Mutual Funds.

The stock exchange platform has failed to garner good volume in mutual fund sales since the schemes started selling through exchanges – the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) – in December 2009.

One of the major concerns of brokers was direct allotment of units to an investor’s account by mutual fund companies. They wanted the allotment of units and payment of redemption proceeds to be routed through them.