Sebi extends two-factor authentication to buying mutual fund units

With a view to safeguard the interest of investors, the markets regulator on Friday extended the two-factor authentication (2FA) for subscription transactions in the units of mutual funds as well. The new framework will come into force from 1 April 2022.

The Securities and Exchange Board of India (Sebi) in October 2021 had introduced various measures to prevent third-party payments and to safeguard the interest of unitholders.

The asset management compaines (AMCs) were mandated to authenticate redemption transactions using two-factor authentication (for online transactions) and signature method (for offline transactions). Two-factor authentication for redemption of mutual fund units was implemented with effect from 1 June 2022 for transactions outside stock exchange platforms and from 1 July 2022 for transactions on stock exchange platforms.

In a circular issued on Friday, Sebi said, “One of the factors for such two-factor authentication for non-demat transaction shall be a one-time password sent to the unit holder at his/her email/ phone number registered with the AMC/RTA.”

According to the regulator, in the case of demat transactions, process of 2FA as laid down by the depositories would be followed.

Further, in case of mandates or systematic transactions, the requirement of 2FA would be applicable only at the time of registration of mandate or systematic transactions.

The Association of Mutual Funds in India (Amfi’s) best practice guidelines issued for AMCs with regard to 2FA for redemption transactions of mutual funds would be be revised suitably to include subscription transactions of mutual funds.

It is mandatory for all the fund houses to follow these guidelines.