Maintenance of Current Accounts in multiple banks by Mutual Funds

Last updated: 05 August 2021

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The Securities and Exchange Board of India (SEBI) has issued a circular clarifying the maintenance of current accounts by mutual funds (MFs) in multiple banks. Previously, RBI instructions restricted banks from opening current accounts for customers with credit facilities. However, SEBI acknowledges that MFs' operations, like receiving subscriptions and making redemptions, are similar to activities permitted under RBI exemptions. Therefore, MFs are permitted to maintain current accounts in an appropriate number of banks to ensure financial inclusion, investor convenience, and ease of doing business.

Securities and Exchange Board of India

CIRCULAR

SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/610

August 4, 2021

All Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)

Sir / Madam,

Subject: Maintenance of Current Accounts in multiple banks by Mutual Funds

1. Mutual funds currently 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/ commission etc. This enables investors to transact with banks of their choice and facilitates faster transfer of funds.

2. Mutual fund industry has informed that the Reserve Bank of India (“RBI”) has instructed that banks shall not open current accounts for customers who have availed credit facilities in the form of cash credit / overdraft from the banking system. On a review, however, RBI has 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/ share buyback, etc.

3. Mutual fund 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 above, industry has requested SEBI to issue instructions for mutual funds in respect of maintenance of current accounts in multiple banks.

4. 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. to facilitate financial inclusion, convenience of investors and ease of doing business.

5. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, read with the provisions of regulations 77 of SEBI (Mutual Funds) Regulations, 1996, to protect the interest of investors in securities and to promote the development of, and to regulate the securities market.

Yours faithfully,

Divya Kulshrestha
Deputy General Manager
Tel no.: 022-26449357
Email: divyam@sebi.gov.in

FAQ :

Mutual funds maintain current accounts in multiple banks to receive subscription amounts and to facilitate payments for redemptions, dividends, and brokerage, enabling investors to use their preferred banks and speeding up fund transfers.

The Reserve Bank of India (RBI) had instructed banks not to open current accounts for customers who had availed credit facilities like cash credit or overdraft. This could have impacted mutual funds' ability to maintain necessary accounts.

SEBI has clarified that mutual funds should maintain current accounts in an appropriate number of banks for receiving subscriptions and making payments for redemptions, dividends, and brokerage.

This practice facilitates financial inclusion, enhances the convenience of investors, and promotes ease of doing business within the mutual fund industry.

Yes, the RBI has provided an indicative list of accounts that can be opened without restriction, including those for New Fund Offerings (NFOs), dividend payments, and share buybacks.