Elementary,” said the legendary detective Sherlock Holmes every time he deciphered a clue. We bet you’d say the same, every time you perform the simple task—or at least suppose it’s simple—of filling a mutual fund (MF) form.
By now, you can blurt out details such as your name, address and telephone number even while sleeping. Some of you may even remember your bank account number or permanent account number (PAN). So, what’s the big deal after all?
It could take you several days if not months to finally submit your “simple” MF form if you overlook even minor details. Your MF form can get rejected for the silliest of errors you make. Not only is it tiring to fill up forms again, you may even end up losing market upsides, if any.
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Here are some common errors people make while filling forms.
Not joining existing folio
If you invest in a scheme of a fund house that is already in your MF portfolio, make sure you use your existing folio. A folio is a combination of all your investments within the same fund house.
Suppose, you invest in three schemes of HDFC Asset Management Co. Ltd—HDFC Equity, HDFC Taxsaver and HDFC Prudence. The fund house will allot account numbers for each of the three schemes, and also club them under a folio for which you will get a unique folio number.
In keeping with the Securities and Exchange Board of India’s (Sebi) guidelines, your fund house will send a consolidated account statement once a year, mentioning details of all your holdings. It’s like putting all relevant files (think of these as your account numbers) in a single filing cabinet (think of this as your folio).
A consolidated statement would reduce paper work and make it easier for you to monitor your investments. Also, effecting changes would be easier. For instance, your bank account or address details with the three HDFC schemes will get changed with a single application. K. Venkitesh, national head (distribution), Geojit BNP Paribas Finance Services Ltd, says: “Less than 10% of investors opt for the same folio number even though it reduces work substantially.”
Not choosing an option
Most schemes have various plans and options. Typically, “plans” specifies the category of investors such as institutional and retail. “Option” caters to either “dividend” or “growth”. Make sure you select the right plan and option.
Usually, different plans have different restriction levels in terms of the minimum investment amount. While institutional plans require a minimum investment of Rs25 lakh to Rs1 crore, depending on the fund house, retail plans need just Rs5,000. If you select the institutional plan for a small amount, your application will be rejected.
Also, decide whether you want the “dividend” or “growth” option. In other words, decide whether you want to receive dividends as and when the fund declares them or wish to see your money grow. Forget to select your option and the fund house allots you its default option, which could be either. For instance, Birla Sun Life MF imposes a default option of “dividend reinvestment” for all its schemes, except Birla Sun Life Tax Relief ’96, where the default option is “dividend payout”.
Jaydeep Kashikar, director, Brainpoint Investment Centre Pvt. Ltd and a Mumbai-based financial planner, says: “Some people invest in equity funds expecting dividends, but don’t get dividends because they don’t make any choice. The auto option may move the fund into, say, a growth option.”
Wrong SIP start date
Every time you enroll for a systematic investment plan (SIP), the fund house, typically, takes a month to process the application. Your SIP starts after that. Make sure your SIP start-date in the form is at least 30 days away from your application date. So, if you enroll for an SIP on 7 February, the earliest you can start it is 7 March. If you put 1 March, your application gets rejected. Typically, you can start your SIPs on the first, seventh, 10th, 15th, 20th and 25th day of any month.
There’s more. If you want an electronic clearing service (ECS) facility for the SIP and you have a joint account, all bank account holders will have to sign on the form near the “bank mandate” section. Under the SIP mandate section, though, only MF account holders need to sign.
Not filling ‘mode of holding’
Picture this. You and your spouse have invested jointly in an MF. Some months down the line, equity markets shoot up while you are travelling. You call up your spouse to book profits. She can’t because, as it turns out, your signature is mandatory. By the time you return, it’s too late.
Your mode of holding determines who manages your investment during an emergency. If you have a second account holder, you get two choices: “either or survivor (EoS)” or “joint”. Under EoS, you or the second account holder can buy fresh units, switch or sell. Even if the second holder, say, sells your holdings, the sales proceeds would go to the primary holder’s bank account. If you select “joint”, signatures of all account holders are mandatory for any buy, switch or sell. Again, you don’t choose and your fund does it for you. Fund houses such as Tata and Reliance have “joint” as the default holding mode while funds such as Birla and Mirae have EoS.
Not quoting your PAN
It’s common knowledge to quote your PAN while investing in an MF, but still a lot of us forget to mention it in the form, while remembering to attach a copy. “If you submit forms at the registrar’s offices without mentioning your PAN, 99% of times your application gets rejected even if you have attached the PAN card copy. However, if you submit at your fund’s offices, chances that they would double-check and fill the gap are much higher,” says Venkitesh.
Sometimes the registrar will accept your form if you submit your PAN card copy without noticing that you haven’t entered your PAN in your form. As a result, later, your fund may end up sending you reminders that you have not submitted or quoted your PAN.