Investing in Mutual Funds: Check new rules for transactions, redemptions and switch
Capital markets regulator SEBI has mandated a new rule for mutual fund investors from June 1st. Investors making their mutual fund purchases through mutual fund house web portals, and fintech apps such as INDmoney, will have to fulfill a crucial step from now onwards. You will be able to make mutual fund transactions such as redemptions, investing via a Systematic Transfer Plan (STP), opting for Systematic Withdrawal Plan (SWP), making switch requests, etc., only if you have Two-factor Authentication (2FA).
What is a Two-Factor Authentication?
- Two-factor Authentication (2FA) is a two-step security process for verification. In order to proceed with the transaction, investors will have to input the one-time password (OTP) sent to their registered mobile number/ email ID.
- Two-factor Authentication involves a second level of security than authentication methods that depend only on Single-factor Authentication (SFA), in which the user provides only one factor such as the password.
- This is being done to ensure a higher level of safety for the investors. This secures an investor's sensitive data and prevents any misuse.
What should you do now?
- There is no urgent action required from your side. The new two-factor authentication rule applicable for all sale-based transactions such as switch, redemption, systematic transfer plans and systematic withdrawal plans. You would just need to verify your transactions via OTP as detailed below:
How does the new procedure work for transactions in mutual funds at INDmoney?
Step #1 - Go to the mutual fund section on the app and choose a scheme in which you would like to make the transaction.
Step #2 - Select the plan of action on your mutual fund scheme, such as redemption, STP, SWP, switch request, etc.
Step# 3 - After you confirm the transaction, click on continue. Select the folio number under which you want to make the translation and click on generate OTP. You will then receive a One-Time Password (OTP) on your mobile number/email ID, and you will be required to enter that OTP online before the transaction is processed.
This Two-factor Authentication rule will ensure that an additional One-Time Password (OTP) is sent to you for mutual fund redemptions so that the redemption transactions cannot be initiated without the consent of the investor/unitholder.
Why did SEBI enable 2FA?
This Two-factor Authentication rule will ensure that an additional One-Time Password (OTP) is sent to you for mutual fund redemptions so that the redemption transactions cannot be initiated without the consent of the investor/unitholder.
What happens to my SIP investments?
Great news! Your SIPs on INDmoney are not impacted, while if you had invested via any stock broker, you would have needed to reset your Mutual Fund SIPs.
What happens to my Systematic Transfer Plan (STP) transactions?
- For your existing STP’s i.e STP’s started prior to 1st July, on the due dates you would receive an email authentication link from BSE Star MF(Our execution partner). You would need to verify the installment via OTP.
- For STP’s started post 1st July, you would need to verify your transaction only once while placing the STP request. All future installments will processed automatically.
What happens to my Systematic Withdrawal Plan (SWP) transactions?
- Your existing SWP’s are not impacted! They will be processed automatically on the due dates.
- For SWP’s started post 1st July, you would need to verify your transaction only once while placing the SwP request. All future installments will processed automatically.