WHO CAN INVEST

  1. An Indian Citizen having attained an age of 18 Years is eligible to invest in any Mutual Funds Scheme.
  2. Any individual below 18 years of age (MINOR) can invest through his parents or lawful guardians.
  3. A Non-Resident Indian (NRI) can invest in India and can get the sale proceeds transferred abroad on repatriable basis.
  4. Non-Individual Investors like Companies, Registered Societies, Trusts, AOPs, Partnership firms, Banks etc. can invest through their authorized officials and need to submit board resolution and authority letter.
  5. Foreign Portfolio/Institutional Investors can invest either by way of their Demat Account (DP) or through indirect route i.e. Unit Confirmation Receipt.
  6. Other mutual funds registered with SEBI are eligible to invest in a Mutual Fund Scheme.

KYC COMPLIANCE FOR INVESTORS

  1. Every investor (Individual/non-Individual) has to be KYC compliant and every investor is required to submit documents related to proof of identity and address at point of service (POS) to complete process of KYC.
  2. KYC Registration Agencies (KRAs) facilitate the centralized KYC process which comprises of submission and verification of KYC Form, investors Identity and address proofs.
  3. In case of Minor, KYC requirements have to be complied with by the
  4. In reference to KYC, PAN number is not mandatory where investment in mutual fund is less than Rs. 1 lakh.
  5. PAN Card is not required for investments by Systematic Investment Plans, if the annual investment is below Rs 50000.
  6. Once the KYC of an investor is done by a KRA, investor has to submit only the Acknowledgement letter issued by KRA for any further investment.
  7. FATCA stands for Foreign Account Tax Compliance Act.
  8. The access of demat facility for mutual fund investor has increased with NSE and BSE providing screen-based platform for transactions in mutual fund schemes.
  9. Demat Account decreases the risk involved in process of physical transfer of certificates and other documents.

INVESTMENT PROCEEDURE

  1. Fresh purchase of units in a scheme can be made during the new fund offer (NFO) period or even after that in an open-ended scheme.
  2. If investor already has a folio with the mutual fund, only Transaction Slip needs to be submitted with the requisite payment for investment purpose.
  3. Online Transactions- Many AMCs/Distributors provide online platform to make investments /repurchase / switches based on user ID/Password created on their websites.
  4. Investors have the option to invest directly without routing the investment through distributors (Direct Plan).
  5. Mutual fund investments can be made through Cheque/Demand draft/NEFT /RTGS. Cash investment is limited to Rs 50,000 (Rs Fifty Thousand) per mutual fund per investor in a financial year.
  6. Any investor having units under Open end scheme can go for repurchase of units, which is commonalty known as redemption.
  7. The NAV of units gets proportionately decreased post bonus issue.
  8. NAV applicable for processing a mutual fund transaction depends on Type of scheme, day of transaction and the time of transaction.
  9. SEBI has prescribed the cut off timings to ascertain the NAV to be applied to purchase or redemption transactions as follows:
Type of SchemeTransactionCut off timeApplicable NAV
Equity oriented funds and debt funds (except liquid and Overnight funds) in respect of purchases less than Rs 2 lakhsPurchases and Switch ins3:00 PMSame day NAV if received before cut off time.
Next business day NAV For Applications received after cut off time
Equity oriented funds and debt funds(Except liquid and Overnight funds) in respect of transaction equal to or more than Rs 2 LakhsPurchases and Switch ins3:00 PMIrrespective of the time of receipt of application, NAV of the business day on which the funds are available for utilisation without availing of any credit facility before the cut-off time of that day is applicable.
Liquid and Overnight fundsPurchases and Switch ins1:30 PM
(w.ef.20/10/19)
If application received upto the cut off time and funds are available for utilisation before the cut-off time without availing any credit facility, then closing NAV of the previous day is applicable.
If application received after cut-off time and funds available for utilisation on the same day without availing any credit facility, closing NAV of the same day is applicable.
Irrespective of the time of receipt of application, where the funds are not available for utilisation before the cut-off time, without availing any credit facility, closing NAV of the day immediately preceding the day on which the funds are available for utilisation.
Equity Oriented funds, Debt funds (Other than liquid Funds)Redemptions and switch outs3:00 PMSame day NAV if received before cut off time.  
Next business day NAV For Applications received after cut-off time.
Liquid FundsRedemptions and switch outs3:00 PMNAV of day immediately preceding the next business day, if received before cut off time.
If redemption request is received through instant Access Facility(IAF) upto the cut off time, then the lower of :(a) NAV of previous calendar day and (b) NAV of calendar day on which application is received.
Next business day NAV For Applications received after cut off time.
If redemption request is received through Instant Access Facility(IAF) after the cut off time, then the lower of :(a) NAV of  calendar day on which such application is received  and (b) NAV of next calendar day.
  1. For example, for an equity scheme, if the Subscription / switch in application with investment amount up to Rs 200000 is received after 3 pm, the applicable NAV will be Closing NAV of the next business day.
  2. Similarly, For Liquid Scheme, if request for redemption/ switch outs is received after 3 pm, the NAV applicable will be Closing NAV of the next business day.
  3. If an investor gives a local cheque of Rs 4 crore for investment in Gilt scheme at 11.30 A.M. The NAV of the business day on which the funds are available for utilization before the cut off time of that day would be applicable to this investment.
  4. For making Investment in Exchange Traded Funds ( ETF) Units, opening of a Demat account is mandatory.
  5. In case of allotment of Bonus Issue of Units, the investor does not have to make any payment.
  6. Re-purchase price can be determined by subtracting exit load from the effective NAV.
  7. In Dividend payout option as well as in Dividend reinvest option, the fund declares dividend from time to time hence there is a liability of Dividend Distribution tax.
  8. ASBA is the abbreviated form of Application Supported by blocked amount.
  9. Request for redemption of units can be made in number of units as well as in the amount required to be redeemed.
  10. There are two main options offered by mutual fund schemes-Growth and Dividend. Dividend option has two sub categories – Dividend payout option and Dividend reinvestment.

SYSTEMATIC TRANSACTIONS

  1. Under Systematic Investment Plan, Investors can book SIPs by investing through Postdated cheques (PDCs).
  2. Under the Systematic Investment Plan (SIP), investment is made at specific periodic intervals which averages the cost of acquisition.
  3. Under Systematic Withdrawal Plan (SWP), Investors can plan redemption /withdrawal also in a systematic manner. Under this plan, investor does not end up in an unfortunate position of redeeming the entire investment in one go at a low market value.
  4. Under Systematic Withdrawal Plan also, there will be an implication of Exit Load or taxation.
  5. Under Systematic Transfer plan, instead of systemic redemption and payment of investment back to investor, amount is withdrawn from one scheme (Source scheme) and is reinvested in some other scheme (Target Scheme) of the same mutual fund.
  6. Under Dividend Transfer Plan (DTP), the dividend earned in a particular mutual fund scheme is invested into another scheme of the same mutual fund.

OTHER INVESTOR SERVICES

  1. Other investor services include providing account statement/certificates, Nominations, Lien of Units, Change in Folio details and Transmission of Units etc.
  2. Mutual Fund Units can be pledged against loans through a pledge form. The units that are offered as security against a loan should have completed the lock in period, if any.
  3. Only an individual Investor can make nomination. In relation to any dispute with regard to the nomination, the inheritance law of the country is to be relied upon to finalize the issue.
  4. Some Mutual Funds these days give an option to investor so that by setting a Trigger, an investor can transfer money into an equity scheme when market goes down by a specified percentage.
  5. In relation to the transmission of units, In case of a single holder, where there are no nominees, the units are transferred to Legal Heirs.
  6. In the context of Mutual Funds Industry, MFU stands for Mutual Fund Utilities which is a platform that connects AMCs, RTAs. Distributors, Banks and others.
  7. The stock exchanges which provide mutual fund trading facilities do not provide for settlement guarantee.
  8. Three fourths of the unit holders of any scheme can pass a resolution for winding up that Mutual Fund scheme.
  9. As part of other investor services, SEBI has prescribed the timelines within which various transactions of the investors need to be completed by Mutual Funds/AMC.
  10. For example, Allotment in a NFO is to be completed in 5 days of close of NFO, Dividend warrants must be dispatched within 30 days of declaration, Redemption proceeds to be dispatched in 10 days of redemption, Allotment confirmation to be sent by email/SMS within 5 days of transaction request. CAS to be sent within 10 days of the end of month of transaction.

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[WATU 14]

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