Last week, we told you how some mutual fund (MF) investors found it hassling to change their bank account mandates at the time of, say, redemption. Soon, you would be able to put this problem behind you. A few new rules in the industry will change the way you invest in MFs. We tell you what these are and what you should do.
Multiple bank accounts
Effective 15 November, you will be able to register up to five bank accounts with your fund house. You can choose to get dividends credited (if you’ve chosen to receive them through the electronic clearing service mode) and your redemptions into any of these accounts.
Also Read More Money Matters stories
As of now, when you issue a cheque to buy an MF scheme, the bank account gets registered with the fund house. If you were to stay invested for several years and in the interim, closed your bank account and moved on to a new account, you would have to get your new account registered with the fund house.
Also See Recent Changes (PDF)
Mostly, this is a simple procedure—fill up the transaction slip that comes with your account statement (or download it from your fund’s website or get it from your registrar and transfer’s, or R&T, office) and submit it to your MF’s or R&T’s office. Some MFs such as HDFC Asset Management Co. Ltd also insist on some proof of your old bank account.
While the process increases paperwork, it is also tough for investors to produce proof of bank accounts (such as a cancelled cheque leaf or a copy of bank statement or if you have neither, the branch manager’s certificate that you had a bank account with them earlier) that you had long back and whose records you no longer have.
Keeping things in check
Though your fund house will give you an option to register up to five bank accounts, you would need to make one of them your default account in which your dividend and redemption proceeds will flow. At any point in time, you are free to change your default account to any of the other four accounts. However, since you would have already submitted the proof of all the five bank accounts at the time of investment, you wouldn’t be called for submitting proof all over again.
Jimmy Patel, chief executive officer, Quantum Asset Management Co. Ltd says: “Fund houses get many requests to change bank accounts at the time of redemption. The new norm will bring things under control as the fund house would already have the proofs of an investor’s various accounts. To change the bank account mandate would be quicker.” He adds that investors had to wait for almost 10 days to get their bank mandates changed.
Although steps taken by fund houses such as HDFC AMC hassle investors, most fund houses claim it’s necessary. “The ease with which bank account mandates were changed was not good from the risk perspective. Once investors register bank accounts and provide proof upfront, the risk of someone else fraudulently opening bank accounts gets reduced,” says Rajesh Krishnamoorthy, managing director, Fundsupermart.com, an MF portal.
KYC for all
Earlier, know-your-customer (KYC) was required for investments of Rs 50,000 and above. Effective 1 January, irrespective of the amount you invest, you will need to be KYC-compliant.
With this new rule, the Indian MF industry has got a new headache. MFs and agents alike have expressed fears on whether the nodal agency appointed to do KYC for MF investors, CDSL Ventures Ltd (CVL), a division of Central Depository Services (India) Ltd (CDSL), is equipped to handle the volume of KYC applications. “Lots of young professionals are mobile these days; they change jobs and cities and, therefore, residence. Every time they change their residence, they need to update their KYC. Sadly, once they apply for change, there is no system of getting an acknowledgement as of now. It’s a nightmare,” says a distributor, who did not want to be named.
Note that when you change your residence, it’s important to update your KYC. If you’ve opted to receive dividend proceeds by cheques at your postal address, your MF may continue to send cheques at your old residence. Or if there is a mismatch of your name as per your registered bank account and your MF folio, typically, the MF sends you the cheque by post. Therefore, if you change your address, you must update your KYC address.
However, Cyrus Khambata, senior vice-president, CDSL, is confident that they are equipped to handle the load. He says: “We handle 8,000 applications per day. There is no problem and we have updated our systems adequately to handle the pressure.”
The irony is that if you invest in MFs through stock exchanges, you do not need a separate KYC; your demat account’s KYC is enough. However, your bank account’s KYC (MFs do not accept cash; only cheques) is not considered fit enough.
Tip: There’s a way to track your KYC application on the Internet after submitting your KYC form. Visit Cvlindia.com and click on “Inquiry on KYC”. A small window will pop up on your screen asking your permanent account number (PAN). Once you submit your PAN and if your KYC is approved, you will get an acknowledgement. Take a printout as your KYC proof.
No third-party cheques
The next time you invest in an MF, you will need to make sure that you submit a cheque from a bank account of which you are one of the account holders. To ensure that an investor puts in her own money and not somebody else’s, the Association of Mutual Funds of India, the industry body, has mandated that third-party cheques be banned. It doesn’t matter whether you are the primary or a joint accountholder.