The new fund offers (NFOs) of fixed maturity plans (FMPs)—debt mutual fund (MF) schemes—come with a closing date, just like any other NFO. However, some applications may be rejected if not submitted at least a couple of days before the NFO closure date.
Why the fund would do so
Fund managers conceive an FMP when debt market yields are attractive. To be able to lock investors’ money at such yields, it becomes necessary for fund houses to get investors’ money as soon as possible. If they delay in deploying the money, yields may move down and the FMP may lose its charm. Hence, they try and ensure that they get the money deposited in their bank account as soon as possible.
Understanding the system
Say an FMP’s NFO closes on 31 March, it would ideally want all the money by that day. Typically, a fund house has bank accounts with several banks. If an investor has an account with a bank which the MF has a tie-up with, a cheque can be issued by the cut-off time on the NFO’s closing date to ensure that funds get transferred at the earliest; transfer from one account to another within the same bank works faster.
Alternatively, again if the investor and the fund house have bank accounts with the same bank, funds can be transferred using the Real-Time Gross Settlement System (RTGS) or even by National Electronic Funds Transfer. Check with the MF if it has such option; large and institutional investors usually invest using RTGS method as it’s the quickest way to transfer money.
The MF’s bank account name and number and the bank IFSC code would be required for such transfers. Once funds are transferred through RTGS, quote the RTGS transaction number, called the unique transaction reference number, in the form that is eventually submitted with the MF.
How would you know
If the investor and the MF does not have accounts in the same bank, she will need to submit a cheque about two days before the NFO closure date as MFs claim that it takes the money two days to reach them. Check with the agent or fund house to know the list of banks the MF has tied up with to ensure the application isn’t rejected. While some MFs, such as ICICI Prudential Asset Management Co. Ltd, have differential dates, fund houses, such as DSP BlackRock, accept all kinds of cheques till the closing date. Check the FMP’s offer document to know the fund’s policy and differential dates.