As the mutual fund sector scrambles to comply with circulars, SEBI has put a halt on NFOs

For the time being, the Securities and Exchange Board of India (SEBI) has halted the mutual fund sector from releasing new fund offers (NFOs), giving the industry time to comply with its new rules.

The first step in launching a mutual fund is to file an NFO.

The regulator has instructed mutual fund houses to ensure that no mutual fund distributor, online platform, stockbroker, or investment advisor combines accounts and then transfers the funds to the fund house for the purpose of purchasing scheme units for those participants. This is to ensure that the funds are not misappropriated.

These include, among other things, ceasing to pool client funds for Mutual fund (MF) transactions on stock exchanges and other online platforms.

SEBI has also tightened pre-transaction verification criteria for MF products, lowering the risk of investors’ money being misappropriated.

On Thursday night, SEBI said that the deadline to comply with regulations had been extended from April 1 to July 1. “Approvals of new schemes may be put on hold to ensure undivided focus in the appropriate execution of this project in conjunction with a large number of stakeholders,” SEBI wrote to the advocacy organization Association of Mutual Funds of India (Amfi).

The regulator has also asked the Association of Mutual Funds in India (Amfi) to implement its associated circulars on two-factor authentication for mutual fund redemption and verification of source accounts when mutual fund investments are made, according to a letter sent to Amfi.
Only after complying with the above-mentioned Sebi circulars can fund firms launch new programs.

On the 4th of October 2021, and again on the 15th of March 2022, circulars were published requesting that the industry follow the following rules. Compliance, on the other hand, is still pending.

Amfi had made a number of requests to the regulator for a deadline extension. SEBI extended the deadline to July 1, 2022 on Thursday. However, in order to assure compliance, the regulator has temporarily halted new fund offerings.

The circular on pooled accounts is intended to mitigate the possibility of a broker misappropriating money intended for mutual funds and then defaulting. This danger can be ring confronted by sending money directly to the fund firm or stock market.

For mutual fund redemption, for example, the two-factor authentication regulation will mean that the consumer will receive an additional OTP (One Time Password). The goal is to reduce the risk of fraud in the industry. Similarly, source account verification is aimed at reducing the danger of money laundering in mutual fund investments.