The Indian mutual fund industry only keeps getting bigger and better every year. The market regulator, the Securities and Exchange Board of India (SEBI), has introduced several initiatives to make mutual fund investments safer and transparent for investors in the past few months.
Here’s a round-up of the events that have taken place in 2022 so far.
Two-Factor authentication for transactions in units of mutual funds
The SEBI circular for Two-factor Authentication (2FA) for Mutual Fund Redemption was released on March 31, 2022. Users authenticate themselves using two separate authentication factors in a two-step security procedure known as two-factor authentication (2FA). A username, password, security questions, an OTP, a fingerprint, or a face ID can be used as authentication factors.
A One-Time Password (OTP) will be sent to unit holders at the email or phone number registered with the AMC for the following online transactions: Redemption, Switch, Systematic Transfer Plan (STP) Registration, and Systematic Withdrawal Plan (SWP). This is one of the factors for the Two-factor Authentication (2FA) procedure.
Before this announcement, two-factor authentication was needed for all Asset Management Companies (AMCs) to authenticate redemption transactions.
The capital markets regulator SEBI published a circular on Friday, September 30, 2022, stating the expansion of two-factor authentication for subscription transactions in mutual fund unit subscriptions to further protect investors’ interests. On April 1, 2023, the new framework will go into effect.
Rebalancing of portfolios
SEBI has released a timeframe for portfolio rebalancing to ensure consistency among mutual funds.
According to SEBI, the rebalancing period shall be applied if passive violations cause a divergence from the required asset allocation specified in the Scheme Information Document (SID).
Passive breaches are often those that have not occurred as a result of the fund house’s omission and commission.
Except for Index Funds and Exchange Traded Funds (ETFs), all mutual fund schemes must rebalance within 30 business days.
A written rationale explaining the steps to rebalance the portfolio must be presented to the investment committee if the portfolio of schemes is not rebalanced within the required time frames.
If the investment committee chooses, the deadlines may be extended by 60 working days from the end of the required rebalancing period.
AMCs will not be allowed to launch any new schemes until the portfolio of schemes has been rebalanced. Additionally, they won’t be permitted to charge any exit load to investors who leave such schemes.
Standardise nominations processes
A circular from SEBI was released to standardise procedures for nominations in mutual funds.
SEBI has requested mutual fund companies to set March 31, 2023, as the deadline for either adding a nominee or opting out of the nomination for current investors. Folios for sale transactions will be frozen if this requirement isn’t followed.
Investment limit based on debt paper’s credit rating
AMCs have been instructed to limit their investments 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, schemes must restrict their exposure to 8%, while the cutoff point for securities with ratings below A is 6%.
AMCs will be fined for missing dividend or redemption payments
SEBI has ordered AMCs to pay dividends within seven working days of the record date in a circular.
The regulator modified the deadlines for transferring dividend and redemption profits to holders of mutual fund units. Fund companies have to pay investors interest at a rate of 15% per year for the delayed payments.
HSBC AMC acquires L&T Mutual Fund
HSBC Asset Management Company has fully acquired L&T Mutual Fund. According to L&T Finance Holdings, HSBC AMC paid ₹3,485 crore.
The first announcement of the $425 million agreement came in December 2021, and in October of this year, SEBI approved it.
When one fund house is sold or integrated with another, schemes of the same type from both fund houses are frequently merged. Fund houses are required to do this since each of the categories they have listed is limited to a single fund per fund house. As co-CEOs of this merged company, Kailash Kulkarni and Ravi Menon will share leadership responsibilities.
Before the merger, Kailash Kulkarni ran L&T Mutual Fund, and Ravi Menon ran HSBC Mutual Fund.
Sriram Ramanathan and Venugopal Mangat will hold the positions of Chief Investment Officer (Debt) and Chief Investment Officer(Equity), respectively. Previously, Mr Mangat and Mr Ramanathan served as the L&T Mutual Fund’s Head of Fixed Income and Head of Equity.
IDFC MF will now be Bandhan Mutual Fund
After the market regulator approved the ownership shift, IDFC Mutual Fund will now be known as Bandhan Mutual Fund.
IDFC Mutual Fund was acquired by a group that included Bandhan Financial Holdings Limited (BFHL), GIC, and ChrysCapital.
Following the planned transfer, BFHL will own around 60% of IDFC AMC, while GIC and ChrysCapital would own roughly 20% each.
As a result, Bandhan Financial Holdings Limited (BFHL) is now the sponsor of a newly acquired mutual fund.
A press release from the fund house stated that the current management and investment operations team would continue to be in place. Therefore, this takeover would not result in any changes to the fund management.
Padmaja Choudhury is a freelance financial content writer. With around six years of total experience, mutual funds and personal finance are her focus areas.