Markets regulator Sebi on Wednesday asked mutual funds to maintain current accounts in an appropriate number of banks for receiving subscription amount and payment of redemption and dividend.
The move is aimed at facilitating financial inclusion, convenience of investors and ease of doing business, the Securities and Exchange Board of India (Sebi) said in a circular.
“Based on the request of mutual fund industry, it is clarified that mutual funds should maintain current accounts in an appropriate number of banks for the purpose of receiving subscription amount and for payment of redemption/dividend/brokerage/ commission etc,” Sebi said.
At present, mutual funds maintain current accounts in multiple banks including in banks having presence beyond the top 30 cities (B-30 cities), for receiving subscription amount and for payment of redemption proceeds, dividend brokerage and commission.
This enables investors to transact with banks of their choice and facilitates faster transfer of funds.
The mutual fund industry informed that the Reserve Bank of India (RBI) instructed that banks shall not open current accounts for customers who have availed credit facilities in the form of cash credit or overdraft from the banking system.
On a review, however, the RBI provided an indicative list of accounts stipulated under various statutes and instructions of other regulators that can be opened without such restriction, including accounts for the purpose of New Fund Offerings (NFOs), dividend payment and share buyback, among others.
The industry has represented that subscription in units of open ended mutual fund schemes is akin to continuous NFO and redemption of units of mutual fund schemes is akin to buy back or repurchase of shares.
Considering the same, the industry requested Sebi to issue instructions for mutual funds in respect of maintenance of current accounts in multiple banks and the regulator issued the clarification.