MFs seek status quo on collection account with multiple banks

AMFI has written letters to RBI, Sebi

Mumbai: The mutual fund industry body, Association of Mutual Funds in India (AMFI), has written to the Reserve Bank of India (RBI) to permit MFs to continue operating collection account with multiple banks in order to provide better service to unit holders. AMFI has also requested the capital markets regulator Sebi to intervene on behalf of the MF industry to prevail upon the RBI to consider AMFI's request.

It comes in the wake of Sebi's deferment of NAV applicability based on availability of funds for utilisation by a month. This is for the operational reasons that the industry had put a request before Sebi in the light of RBI's earlier circulars.

The plea given by the fund houses is that they are not normally big borrowers. And hence the fund houses are not borrowing money for long-term, short-term or even for capex. The fund houses' borrowings are mostly overnight in nature. They borrow at the end of the quarter to repay within a day or two. So, fund houses can't be compared with corporates.

"We are allowed to borrow 20 per cent of NAV of any fund, mostly in case of liquid funds whenever there is a heavy redemption at the end of every quarter," G Pradeep Kumar, chief executive officer, Union AMC told Bizz Buzz, while confirming the development.

According to Pradeep Kumar, "We do need collection account with different banks for the convenience of investors and we may not have the borrowing arrangement with all those banks. So, operationally there is difficulty for mutual funds. Keeping it in view, Sebi has already given some more time to us to implement with a view to resolving the issue with the bank accounts."

Once, RBI pays heed to the industry's demand, then the collection process will become smooth for the fund houses and it will further help investors to transfer they money from different bank accounts and avoid any delay in collection process by the fund houses.

Sebi has deferred the effective date for implementation of its circular dated September 17 for applying NAV based on availability of funds for utilisation by the mutual funds from January 01 to February 01.

However, in the light of RBI circulars dated August 6 and December 14, have posed significant unexpected challenges and implications on the banking arrangements of mutual funds.