Risk mitigation process against third party payments in mutual fund subscriptions
The Association of Mutual Funds in India (AMFI) vide circular no 16/2010-11 has issued best practice guidelines, advising non-acceptance of third party payments in respect of mutual fund investments.
Third party payments
A third party payment is defined as a payment made from a bank account other than that of the beneficiary investor. In case of joint holders in a folio, the first holder will be considered as a beneficiary investor.
The above said will be effective from 15 November 2010 to all investors barring the following exceptions:
- Gift given by parents/grandparents/related persons in favour of minor, not exceeding INR 50,000
- Invested by an employer on behalf of employee as payroll deductions for SIP
- A custodian making an investment on behalf of an FII/client
- Payment by Asset Management Company (AMC) to a Distributor empanelled with it on account of commission/incentive etc. in the form of the Mutual Fund Units of the Funds managed by the AMC through Systematic Investment Plans or Lumpsum Investment (with effect January 16, 2012)
In such instances, KYC acknowledgement along with additional declarations will have to be submitted each time, along with the application form, failing which the application will be rejected. (Additional declaration formats can be downloaded here or obtained from your nearest Investor Service Centre).
Bank account registration details
In case of payment from a joint bank account, first holder in the folio has to be one of the joint holders in the bank account from which the payment is made. Hence, joint holders may pre-register their bank accounts (single/multiple) with the AMC/RTA, by completing the Multiple Bank Account Registration Form, if they intend to make payment on behalf of other joint holder(s) in the folio. In such cases the application will be accepted and not treated as a third party payment.
Mode of payment
- Pre-funded instruments eg Demand Draft, Pay Order, Bankers' cheque etc; if the investor makes an application for investment through any of these modes:
- A certificate from the issuing banker (containing bank seal and name and employee number of issuing officials), stating the account holder's name and the account number which has been debited for issue of the instrument, must accompany the application
- A pre-funded instrument issued by the bank against cash shall not be accepted for investments of INR 50,000 or more
- RTGS/NEFT/Online bank transfer etc
A copy of the instruction to the bank stating the account number debited must accompany the purchase application.
The AMC reserves the right to reject the application, post acceptance and/or processing of the same without any recourse to the investor, if any of the requisite documents/declarations are unavailable or incomplete, and in such case the AMC shall refund the subscription money without interest. Refund orders will be marked "A/c. payee only" and will be in favour of and be dispatched to the sole/first applicant, by courier/speed post/registered post.