Discontinuation of pooling for mutual funds and how it affects Coin

Zerodha Coin - Direct MF
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Up until now, whenever you invested in mutual funds, the funds would be deducted from your trading account just like stocks. On October 4th SEBI issued a circular that disallows pooling of funds for mutual funds from April 1st, 2022.

What does this mean for you as an investor?

This circular means a complete change in the way Coin works since funds in your trading account can no longer be used to invest in mutual funds. Under the new regime, if you want to buy Mutual funds, you’ll have to make payments to the AMC directly from your Bank account. Likewise, when you redeem Mutual funds, the credit will hit the Bank account linked to your demat account…

What does this mean for you as a trader?

Traders pledge their mutual funds and raise margins to trade in the F&O segment. In case there’s a debit in the trading account, the Broker will have to resort to invoking the Mutual funds to recover debit in case the client does not clear the debit in time. I’ll post an update at a later date as to how this would work.

How will Coin work now?

We’ll transition to the AMC SIP mode of investing for all SIPs. The way this would work is you would set up a mandate for all your SIPs directly from your bank account. Other modes of payments like UPI and Net Banking can be used for all lumpsum transactions.

This would also mean that some of the features like instant pause and modification of SIPs and step-up SIPs would no longer work. Having said that, these are features that all the users love. In fact, the response to step-up SIP has been phenomenal, over 70% of all new SIPs have step-up SIPs schedules set for them. In order to ensure all these features continue to work as usual we are figuring out a new structure for the flow of funds and hope to be ready by the time this transition happens.

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Thanks but I have a few questions regarding this:
A) So we can no longer have mutual funds pledged and get margin to trade options?

B) Any particular reason this rule was announced? Is it safer? Because it just feels like another step back.

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Yes it is. There is no third party risk involved here.

Before it was like
You → Broker → AMC.

Now it is like
You → AMC.

Broker will not have your money (from now), so all his features will be gone.
It might look like we are stepping back but this is done to eliminate counter party risks.

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You’ll still be able to pledge, that won’t change. Just the funds for the buying and selling will be from your bank account instead of your trading account.

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What if I want to buy MF from my profit of trading account ? Do I need to withdraw from zerodha and invest in MF ?
If so. Need to pay more withdrawal charges.

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Yes, you will have to withdraw the funds to your bank account for investing in mutual funds.

There are no charges for withdrawing funds from your trading account :slightly_smiling_face:

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Ok so now I am confused.

I have a few MFs present in my portfolio. I have been investing through coin and out of which one was already an AMC SIP.

With the introduction of this new guidline will the remaining SIPs also move to AMC SIP?

Wont I have the option to pause and modify anymore?

Also does this mean that there is NO POINT in investing in MFs through COIN?

Will i no longer have the ability to change date of investment and will it only be on certain days of the month(like how amc sip is working right now)

Features like the stepping up, ability to pause and modify were a BIG plus.

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This change (to use a bank account for investing and not funds in demat account) will be activated from April 1st, 2022 and not immediately right?

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@Bhuvan @ShubhS9
Isn’t it:
You → Broker → BSEStarMF → AMC?

  1. Can you help me understand if BSEStarMF will still hold our funds acting as an intermediary once the new guidelines come into effect?

  2. Can you please let me know once the new structure i.e. Investor → AMC is enabled, will Coin execute orders in real-time? Currently, it holds them until 1:30 pm to execute them in bulk.

  3. Will the Coin cut-off timing change to 3 pm instead of 1:30 pm if as per the new guidelines, the broker is not supposed to hold investor money in between?

If you can bring some clarity on the above-said pointers.
Thanks,

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Will this impact the implementation of SWP/STP or put it on the back burner? Really looking forward to this feature.

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I don’t think that is possible anymore.

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For everyone thinking it’s a big deal, just shift your focus to index ETFs instead of mutual funds. Make life simple.

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ETFs do have their own disadvantages.

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Can u give some examples ?

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One of the disadvanatges is liquidity.
Nothing is actually perfect.
You need to go with the one suits you well.

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Yep, we’’ have to rebuild this from scratch :frowning: Whatever we had built has to change. Please bear with us for some more time.

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This should help

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Funds have to come from your bank account.

We don’t charge anything for withdrawing your funds.

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That’s right.

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Yes. At least initially.

We’re working on an alternative to ensure these features will still be available.

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