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This article has been written by Himanshu Mishra, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution. This article has been edited by Tanmaya Sharma (Associate, Lawsikho), Ruchika Mohapatra (Associate, Lawsikho), and Indrasish Majumder (Intern, Lawsikho).

This article has been published by Shoronya Banerjee.

Introduction

In the economic world, shares and stock exchange(s) are extremely important. Earlier, investors used to get a physical shares certificate whenever they bought securities. Transfer agents now issue shares in the book-entry form, which is an electronic means of registering ownership of securities. With increased investment in mutual fund schemes, publicly listed companies, and other publicly accessible high-yield return products, investors conduct transactions including buying/selling, changing bank mandates, swapping units, and so on. Registrars and transfer agents are hired by mutual fund institutions to keep a proper record of these transactions.

3I Infotech, CAMS (computer age management services), and SAG Infotech are among India’s most well-known registrar and transfer agents. These are third-party companies that specialise in keeping accurate records of client/investor information. The role of the registrar and transfer agent, as well as the services they give to mutual fund houses, will be discussed further in this article.

Who are registrar and transfer agents (R&TA)?

  • R&TAs or registrar and transfer agents are the intermediaries registered with SEBI.
  • Registrar and transfer agents act as a mediator between a mutual fund company and investors.
  • Mutual fund houses hire RTAs due to their expertise in handling information related to investors’ transactions and changes in personal information.
  • Their expertise in the maintenance of data on a professional basis contributes to cost-saving and the time involved in maintaining such data.
  • The transfer agent is in charge of mutual fund share purchases and redemptions, while the registrar is in charge of keeping records
  • There are 79 RTAs recognised by SEBI.

Role of registrar and transfer agent in mutual fund houses

Their primary function is to serve as a back-end solution for mutual fund houses, streamlining the data management process. RTAs have a large network of offices in Tier 2 and Tier 3 cities, making them more accessible to low- and middle-income investors and assisting mutual funds in attracting more business from these areas. Even if investors have invested with various AMCs, they can use them as a single-window solution.

Functions of RTAs

The SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 defines registrars or transfer agents as institutions that register and keep full records of investor transactions for mutual fund firms’ convenience.

Registrar to an issue under Regulation 2(f) of SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993

  • To collect applications from investors in respect of an issue.
  • keeping a proper record of application and monies received from investors or paid to the seller of securities.
  • Assisting body corporate or group of persons in determining the basis of allotment in consultation with stock exchange.
  • Finalising list of persons entitled to allotment.
  • Processing and dispatching allotment letters, refund orders or certificates, and other related documents in respect of an issue.

Share transfer agent under Regulation 2(g) of SEBI  (Registrars to an Issue and Share Transfer Agents) Regulations, 1993

  • Transfer agents on behalf of any body-corporate deal in matters connected with the transfer and redemption of securities issued by such body corporate.
  • Cancel the name and certificate of the shareholder who had sold the shares of securities, and replace it with the new shareholder.
  • Inform investors of new fund offers.
  • Transmission, consolidation, sub-division of securities.
  • Transfer of securities and record-keeping for investors.

Why do mutual fund houses appoint R&TAs?

Every day mutual fund investors do several transactions, like buying, selling, or switching units. Besides these financial transactions, they also do non-financial transactions like a change in bank details, change in contact details, or address. Each such request needs to be recorded and the fund house is supposed to maintain records of each such transaction.

Since most MFs may not want to invest in these processes nor do they have the expertise to handle these huge transactions on a professional basis, they outsource this work. The registrar and transfer agents (R&T agents) help them perform this job.

Benefits of a registrar and transfer agent for mutual fund house

Shareholders have a right to receive truthful information about their investments. Mutual fund houses execute hundreds of transactions per day, and managing and maintaining a reliable record of these transactions can be quite time-consuming for them due to their lack of data handling competence. While some fund houses opt to function as their own transfer agents, others engage or outsource registrar and transfer agents to handle the record-keeping service since it is more convenient for them and relieves them of the burden. Other advantages of hiring a registrar and transfer agent include the following:

  • Better accessibility at a lower cost,
  • Helps in maintaining records of investors’ transactions like buying/selling, change in personal information, bank mandate, etc.,
  • Helped mutual fund tide over the skilled manpower,
  • Helps in generating business from tier-2 and tier-3 cities,
  • Provide single-window solution,
  • Helps in saving time, 
  • Timely updating investors about their investment, 
  • Help investors who are not investment savvy with filling up details regarding their investment like applications, forms, etc.,
  • Investors can invest in different schemes of different mutual fund companies with RTAs without having to deal with each fund house separately,
  • Transfer agents furnish shareholders with annual reports and the company’s audited financial statement.

The mutual fund houses pay the registrar and transfer agent for their services. This cost is ultimately passed on to the investor as part of the annual fee imposed by mutual fund companies. Equity funds have a fee of roughly ten basis points (bps). One-tenth of a percentage point is equal to one bps. It’s roughly 5-7 basis points for debt funds and 3-4 basis points for liquid funds.

Services provided by RTAs

The major function of a registrar and transfer agent is to assist the mutual fund company or any other financial institution that hires them with various financial and non-financial transactions of investors, including keeping and maintaining correct records of their data.

Other services provided by RTAs

  • Providing information about new fund offers and schemes to investors,
  • Cancellation or stoppage request of an ongoing SIP (systematic investment plan) or SWP (systematic withdrawal plan) or STP (systematic transfer plan),
  • Change in investor’s bank account or address,
  • Consolidation of all investor folios under a single folio, an investor can study these statements to review their mutual fund portfolio,
  • Nomination form,
  • Updating records of a minor to a major for an individual,
  • Redemption,
  • CKYC (Central know your customer),
  • Dematerialization of shares through depositories (CDSL or NSDL), 
  • Regulatory reporting, 
  • Share certificate transfer, 
  • Investor record keeping & transfer of securities,
  • Payout of dividend/interest.
  • Common shareholders have the right to vote on major corporate decisions like mergers and acquisitions, etc. Their votes are facilitated through transfer agents who send e-voting information to shareholders to cast their vote.

Capital adequacy requirement for registration

Condition precedent, under Regulation 7 of the SEBI (Registrar to an issue and share transfer agent) Regulation 1993, required for registration. The Securities and Exchange Board of India is the regulatory body for all the securities market-related institutions. Before filling up the application form the applicant must have the capital adequacy of Rs 50 lakhs for Category 1 and 25 lakhs for Category 2. After meeting this criterion a Registrar and transfer agents can make their applications to SEBI in either of the two categories using Form A accompanied by the depositing of non-refundable fees of Rs. 6 lakhs for Category 1 and Rs. 2 lakhs for Category 2.

Category I: to carry on the activities as a registrar to an issue and share transfer agent.

Category II: to carry on the activity either as a registrar to an issue or as a

share transfer agent.

Regulation 7 of SEBI (LODR) Regulations provide that certain provisions of share transfer agents must be followed

  1. Appoint a share transfer agent or manage the share transfer facility in-house
  • If the listed entity has less than or equal to one lakh shareholders: Entity shall appoint a Share Transfer agent or manage the facility in-house
  • If the listed entity has more than one lakh subscribers: Entity shall either register with the Board as category II share transfer agent or appoint a Registrar to an issue and Transfer agent registered with the Board
  1. Within 30 days of the end of the financial year, the listed entity must submit a compliance certificate to the exchange, duly signed by both the listed entity’s compliance officer and the authorised representative of the share transfer agent, if applicable.
  1. All activities related to the share transfer facility must be kept in-house or by a registrar to an issuer and share transfer agent registered with the Board.
  1. In case of any change or appointment of the new share transfer agent, the listed entity must enter into a tripartite agreement with the existing share transfer agent, the new share transfer agent, and the listed entity in the event of a change or appointment of a new share transfer agent. The agreement referred to above must be put into between the listed entity and the new share transfer agent if the present share transfer facility is managed in-house.

5. Further, the listed entity shall intimate such appointment to the stock  exchange(s) within seven days of entering into the agreement

6. Further, the above-mentioned agreement will be included in the board of directors’ next meeting. Except for units issued by mutual funds that are listed on a recognised stock market, the requirements of this regulation do not apply.

SEBI in the matter of Sharepro services said that;

“These institutions have a sacrosanct duty to preserve that trust by upholding institutional integrity, fairness, and professionalism in the conduct of their business at all times and costs as these values lie at the core of their functioning and are beyond compromise.”

Conclusion

Mutual fund investing is becoming more popular among young investors, and as an investor, it is critical to be aware of local registrars and transfer agents because they can be a great source of investment information. RTAs assist in the completion of forms, the making of investments, and the updating of personal information. RTAs will also inform you of schemes or funds that are appropriate for your income and goals.

References 

1. https://groww.in/p/registrar-and-transfer-agents

2. Regulation 7 SEBI (LODR) Regulations, 2015

3. https://www.sebi.gov.in/order-in-the-matter-of-sharepro-services


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