How a Near Lockdown amid Coronavirus Pandemic Will Impact Your Mutual Fund Transactions

Mar 25, 2020

I have been convincing my friend Aarti to start investing in mutual funds since a long time. But it seems she's waiting for the market to hit rock-bottom before she starts investing.

After the market fell sharply amid coronavirus pandemic, she thought it a great opportunity to start investing in mutual funds for her future goals.

Though she initiated the process to start investing in mutual funds -- selecting funds, filling up necessary documents, completing KYC; she is now awaiting a confirmation for KYC verification and allotment of folio number.

But her wait may be prolonged due to complete lockdown in the country amid coronavirus concerns.

The government and municipal authorities have already ordered private offices to implement social distancing measures (such as instructing their staff to work from home and keeping their offices closed etc.) to avoid and discourage assembling of people in offices.

Accordingly, as a social-distancing measure to ensure safety of investors, distributors, visitors and the employees of the mutual funds & their RTAs, AMFI in its circular dated March 22, 2020 advised all mutual funds to keep their collection centres / branch offices (official points of acceptance) closed with effect from March 23, 2020.

This will be effective till the situation comes under control and social distancing advisory is withdrawn by the authorities.

During this period only online transactions through various electronic modes, such as mutual fund websites /web-portals / various digital platforms /apps or virtual channels etc. will be allowed.

Taking note of this, mutual fund houses have started communicating this information to their investors and encouraged them to use the online mode for their financial and non-financial transaction. They have also stated that their call centres will be operating on limited capacity.

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AMFI has highlighted that this would affect the processing of the following financial and non-financial transactions:

  • KYC-verification process

  • Despatching of physical cheques for redemptions and dividends

  • Issue of monthly or half yearly customer account statement

  • Delay in declaration of NAV, daily scheme performance and total expense ratio

As per news sources, AMFI has asked market regulator SEBI to extend timelines for filing various regulatory reports, conducting board and audit committee meetings and updates to Scheme Information Documents (SIDs) and Key Information Memorandums (KIMs).

Moreover, it has said that mutual funds may not be able to comply with sector limits for debt funds set by a SEBI circular on October 01, 2019 due to low liquidity, yield movements, and high redemptions. It has asked SEBI to relax norms on borrowing limits to meet redemptions on a case to case basis. Finally, it asked SEBI to defer the on-going inspection by the regulator.

In the wake of this, SEBI has decided to reduce compliance burden on stock brokers and mutual fund houses by introducing certain temporary relaxations

It has said, all New Fund Offers (NFO) that SEBI has issued observation letter to but has not been launched yet will have a validity period of one year from the date of SEBI letter.

SEBI has extended deadlines for certain disclosures by one month. This includes half yearly disclosure of unaudited financial results, disclosure of commission paid to distributors, and yearly disclosure of investors' complaints with respect to mutual funds.

Effective date for implementation of certain policy initiatives have been extended by a month as well. They are as follows:

  • Risk management framework for liquid funds and overnight funds and norms governing investment in short term deposits

  • Review of investment norms for mutual funds for investment in debt and money market instruments

  • Valuation of money market and debt securities

Finally, it has temporarily relaxed brokers from penal provisions for not maintaining call recording of deals. But they will have to provide electronic confirmation by way of email or other system.

The measures introduced by AMFI and SEBI are crucial, keeping in mind the current circumstances and can encourage mutual funds and distributors to work towards the betterment of investors. Investors can support mutual funds by opting for digital mode of transactions.

[Read: Seven Mistakes To Avoid While Investing Online In Mutual Funds]

You can get in touch with the fund houses through websites, Whatsapp, virtual assistants, etc. Most mutual fund related services such as purchases, redemption, account statement viewing/download, etc. can be availed digitally in the comfort of your home.

 

Warm Regards,
Divya Grover
Research Analyst




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