To protect the interest of investors, the market regulator on Friday extended two-factor authentication (2FA) for subscription transactions in units of mutual funds as well. The new framework will come into effect from 1 April 2022.
The Securities and Exchange Board of India (SEBI) in October 2021 had introduced several measures to prevent third party payments and protect the interests of unitholders.
Asset Management Companies (AMCs) were mandated to authenticate redemption transactions using two-factor authentication (for online transactions) and signature method (for offline transactions). Two-factor authentication was implemented for redemption of mutual fund units with effect from 1 June 2022 for transactions outside the stock exchange platform and from 1 July 2022 for transactions on the stock exchange platform.
In a circular issued on Friday, SEBI said, “One of the factors for such two-factor authentication for non-demat transactions shall be a one-time password to be sent to the unit holder on his/her email/phone number registered with the AMC.” . /RTA.”
As per the regulator, in case of demat transactions, the procedure of 2FA as prescribed by the depositories will be followed.
Further, in case of mandated or settled transactions, the requirement of 2FA will be applicable only at the time of registration of mandated or settled transactions.
The Association of Mutual Funds in India (Amfi) best practice guidelines issued for AMCs regarding 2FA for redemption transactions of mutual funds shall be suitably modified to include membership transactions of mutual funds.
It is mandatory for all fund houses to follow these guidelines.
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