CIRCULAR
SEBI/HO/IMD/IMD-I DOF1/P/CIR/2022/132 September 30, 2022
All Mutual Funds
All Asset Management Companies (‘AMCs’)
All Recognized Stock Exchanges
All Depositories
Association of Mutual Funds in India (‘AMFI’)
All Trustee Companies/ Boards of Trustees of Mutual Funds
All Registrar to an Issue and Share Transfer Agents (‘RTAs’)
Sir / Madam,
Subject: Two-Factor Authentication for transactions in units of Mutual Funds
1. SEBI Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634 dated October 04, 2021
introduced various measures to prevent third-party payments and to safeguard the
interest of unitholders. The Circular, inter-alia, required all AMCs 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 has been implemented with effect from June 01, 2022 for
transactions outside stock exchange platforms and from July 01, 2022 for transactions
on stock exchange platforms.
2. In order to further safeguard interest of investors, it has now been decided to extend
the Two-Factor Authentication for subscription transactions in the units of Mutual
Funds as well. Accordingly, Clause 4.4 of the SEBI Circular no. SEBI/HO/IMD/IMD-I
DOF5/P/CIR/2021/634 dated October 4, 2021, as modified vide the SEBI Circular No.
SEBI/HO/IMD/IMD-I DOF5/P/CIR/2022/29 dated March 15, 2022, stands further
modified as under:
“4.4. In case of subscription and redemption of units, Two-Factor Authentication (for
online transactions) and signature method (for offline transactions) shall be used for
authentication. 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. In case of demat transaction, process of
Two-Factor authentication as laid down by the Depositories shall be followed. It is also
clarified that in case of mandates/systematic transactions the requirement of Two-
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Factor Authentication shall be applicable only at the time of registration of
mandate/systematic transactions.”
3. AMFI’s best practice guidelines issued for AMCs with regard to Two-Factor
authentication for redemption transactions of Mutual Funds shall be revised suitably
to include subscription transactions of Mutual Funds. It shall be mandatory for all AMCs
to follow such guidelines.
4. All other requirements of the Circular No. SEBI/HO/IMD/IMD-I DOF5/P/CIR/2021/634
dated October 04, 2021 and SEBI Circular No. SEBI/HO/IMD/IMD-I
DOF5/P/CIR/2022/29 dated March 15, 2022 shall remain unchanged.
5. Implementation Schedule:
5.1. Based on discussions with stakeholders, it has been decided that the provisions of
this Circular shall be applicable with effect from April 01, 2023.
5.2. The AMCs, AMFI, recognized Stock Exchanges, Depositories, recognized Clearing
Corporations and Registrar to an Issue and Share Transfer Agents shall take
necessary steps for implementing the circular, including putting required processes
and systems in place to ensure compliance with the provisions of this circular.
5.3. AMFI shall furnish by October 14, 2022, the activity wise schedule for
implementation so as to ensure compliance with para 2 above. AMFI shall also
furnish progress report on implementation of provisions of this circular to SEBI on
a bi-monthly basis, starting from December 01, 2022.
6. 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 Regulation
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,
Manaswini Mahapatra
General Manager
Investment Management Department
Tel: 022 - 26449375
Email: [email protected]
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