Module 4 Continued

Individual Investors:
 Resident Indian(above 18-singly or jointly-not

more than 3)
 Minors through Guardians

 Hindu Undivided Families

 NRI’s/PIO

 Foreign Investors –KYC Process

Non-Individual Investors:
Non-Individual Investors:
 Foreign portfolio investors who meet KYC requirements to

invest in equity and debt schemes of Mutual Funds can invest

through two routes:

 1) Direct route – Holding MF units in Demat account through

a SEBI registered DP

 2) Indirect route – Holding MF units via Unit Confirmation

Receipt (UCR)
 Individual and non-individual investors are permitted

to invest in mutual funds in India.

 Foreign Companies and OCBs are not permitted to

invest.

 Since FIIs are permitted to invest, foreign entities can

take this route.

 The ‘Who can invest’ section of the Offer Document is

the best source to check on eligibility to invest.

 Permanent Account Number (PAN) Card

 Exempted are Central/State Government & officials

appointed by Court

 Proof of Address: passport, Voter’s Id, Ration card,

Driving License, bank account statement, utility bill

and other specified documents.

 Documents to be self attested and originals to be

provided for verification purpose

 SEBI has instituted a framework of Centralized KYC

Registration Agencies (KRAs) for the benefit of investors

 Uniform KYC norms prescribed a standard account

opening form (AOF). Part I of the form contains the

basic KYC details of the investor used by all SEBI
registered intermediaries.(Depository Participants,
Mutual Funds, Portfolio Managers, Collective
Investment Schemes and Venture Capital Funds)

 All Investors have to comply with the KYC formalities.

Modes of doing KYC:
 KYC through e-KYC service of UIDAI

 KYC through Intermediaries

 KYC Process:

 Filling Application form

 Original Documents to be returned

 In-Person Verification (IPV) by a SEBI registered

intermediary is compulsory for all investors.
 This IPV will be valid for transactions with other SEBI-

registered intermediaries too.

 Distributors who have a valid NISM-Series-V-A: Mutual

Fund Distributors certificate and a valid ARN can carry out

the In-person verification if they have completed the KYD
process.

 Once these processes are completed and the details are

uploaded on the KRA’s servers, the KYC process is

complete.
KYC For Minors:
 KYC for guardian, proof of age of minor
 After becoming major-complete KYC & provide
acknowledgement to MF AMC
KYC for PoA Holder:
 KYC for both investor & PoA holder

KYC for NRI:

 For NRI investors PAN is the sole identification number for
KYC compliance.
 A copy of the passport/PIO card/OCI card and overseas
address proof is mandatory.
 Micro SIPs i.e. SIPs with annual investment below Rs 50,000 is
exempted from the PAN Card requirement.
 Relaxation in PAN requirement is not available for PIO, HUF,
and Non Individuals.
 It is available for Minor, Individuals,NRI’s but not PIO’s

 Small investors investing in cash, upto Rs. 20,000 per mutual

fund per financial year do not need to provide PAN Card.
 Investors must quote the PAN Exempt KYC Reference Number
(PEKRN) issued by the KRA and submit a copy of the letter with
the application form.
 Besides KYC, non-individual investors need to provide

additional documentation to support their investment.

 MOA & AOA must have clause incorporated for the same

 Board Resolution which provides authorization to invest

 Authorization for the official to sign the documents on behalf

of the investing institution.

 MF can allow transactions only if the transaction form/slip

carries the signature of any (one or more, as required) of the

authorized signatories.
FATCA-Foreign Account Tax Compliance Act
CRS-Common Reporting Standards
 Due diligence process to identify foreign reportable
accounts
 report the same to foreign country

 The application form requires information to be provided if

the citizenship/nationality/place of birth/tax residency are
places other than India for all categories of investors
 The countries of tax residency and respective tax payer
reference ID has to be provided ,all folios will be reported
based on this to foreign country
 Dematerialization is a process whereby an investor’s
holding of investments in physical form (paper), is
converted into a digital record
 Each MF scheme has to take ISIN for each option

 Settlement of most transactions in the stock exchange

needs to be compulsorily done in demat form.
 The investor needs to open a demat account with a DP

 NSE and BSE -screen-based platforms for purchase and

sale of MF schemes
 MF can be held in demat form also-A/c no can be provided
in application form only.ISIN for each option of a scheme
 Option to apply for the units in dematerialized form is provided in
the application form or Investors can also choose to get their
existing units dematerialized.
 DP ,DP ID number & Beneficiary Account Number has to be
provided
 If data provided does not match with DP , units will be issued in
physical mode
 Details such as address, bank account details, nomination for the
units held in demat form is according to the information available
in the depository’s records
 Redemption requests for units held in demat mode has to be
submitted to the depository or through the stock exchange platform
Benefits from DEMAT AC

 Less paperwork in buying or selling the Units, and

correspondingly, accepting or giving delivery of the Units.

 Direct credit of bonus and rights units that the investor is

entitled to, into the investor’s demat account.

 Change of address or other details need to be given only to the

DP, instead of separately to every company/mutual fund

where the investor has invested and holds demat units.

 Consolidate all investments in mutual funds, direct equity,

debentures and others under one account.

• The investor also has the option to convert the demat

units into physical form. This process is called re-

materialisation.
Initial/Fresh Purchase of Mutual Fund Units
 Can be made during NFO period or subsequently for
Open-ended schemes
 Application,KYC documentation must

 Application forms are available with AMCs(website),

distributors and ISC(Investor Service Centres)
 Folio:MF account

 Existing customer wants to purchase additional

units,he needs to provide the assigned folio number
Filling the Application Form for Mutual Funds

 Direct Plan and Regular Plan

 Direct Plan -without routing the investment through a

distributor
 Regular Plan-routed through a distributor/Advisor

 Mention “Direct” in the space provided in the application

form for entering the AMFI Registration Number (ARN)/

Registered Investment Advisor (RIA) number.

 ARN/RIA number -Regular

Unit Holder Information

 MF can have upto 3 holders(eligible investors)

 Folio will be created –First holder will be primary holder

 All benefits like dividends,redemption payments & tax

benefits goes to first holder only

 All details to be provided(Application form)

 For minor it will be through Guardian(Cannot be joint).

Natural Parent or Court appointed legal guardian.

 Minors age proof to be provided

Unit Holder Information
 After becoming a major,KYC to be completed and Guardian
name to be removed from folio
 Folio has a PoA-KYC of both investor & PoA to be
taken.Certified copy of PoA to be submitted
 PoA holder can conduct all transactions except make or
change nominations.
KYC Acknowledgement Letter
 as proof of compliance with the KYC norms by each holder
has to accompany the application form
Bank Account Details
 Bank ac for first holder-the branch and the city, the account
number, type of account ,MICR code and IFSC code
 Demat-Ac no in application should match with bank ac number
in demat account
 Payout bank ac is different from account from where investment
was made-cancelled cheque,bank pass-book or letter from bank
is required
 Dividends & redemption proceeds will be credited directly to the
bank account via electronic modes such as Direct credit, NEFT,
ECS facility. Payment by Demand Draft also can be opted
Investment Details
 choice of scheme, plan, option and payout option at the
time of making the application
 Option-Growth or dividend

 Dividend-dividend pay-out or re-investment

 Dividend payout-frequency of dividend payout

Payment Details
 The details of the instrument & bank account through
which the payment for the investments are being made has
to be mentioned in the application form.
Unit Holding Option

 Can hold in physical mode or Demat mode

Nomination:

 In favour of a maximum of three nominees & indicate

the percentage to each nominee

 At the time of application or subsequently at any time

 Provide a separate declaration of the intention not to

nominate
Minimum Investment

 SID & KIM provide information on the minimum

application amount

 Limit may be higher for the initial investment required

to initiate the folio and lower for subsequent purchases

 Application has to be signed by all the holders

irrespective of the mode of holding.

Additional Purchases

 Subsequent investments with the same MF do not call

for the full application form & documentation

 Only a transaction slip needs to be filled giving the

folio number, & with the requisite payment

 It can also be used to make fresh purchases in another

scheme of the same mutual fund under the same folio

 Transaction slip –sent with statement and is also

available with AMC,distributor,ISC or from net

Online Transaction

 Investor fills details in an application form.

 Then the investor would be allotted a user name and

password (Personal Identification Number – PIN).

 Additional purchase,or redemption

 Websites, facilitate online transactions by investors.

Payment Mechanism -Purchase/Additional Purchase

Any banking channel mode approved by regulators

1.Cheque/Demand Draft(DD)

2. Application supported by Blocked Amount(ASBA)

3.Electronic modes of Payment-Internet Banking

4.M-Banking
 Unified Payment Interface(UPI)

 Aadhaar Enabled Payment Services(AEPS)

 National Unified USSD Platform(NUUP)

 Cards

 E-Wallets

5.One Time Mandate

6. Cash Payments
1.Cheque/Demand Draft(DD)
 A separate payment instrument should accompany each scheme/
plan.
 Cheques -signed by the account holder, while DDs- are signed by
banker.
 NRI/PIO applications need to be accompanied by cheque drawn on
an NRO/NRE/FCNR account (for non-repatriable investment) or
NRE/FCNR account (for repatriable investment).
 If Indian Rupee Drafts are purchased abroad or cheques issued from
NRE/FCNR account Foreign Inward Remittance Certificate (FIRC) by
investor’s banker shall also be enclosed to certify the source of funds
as remitted from abroad
2.Application supported by Blocked Amount(ASBA)

 Facility where the investment application in a NFO is accompanied

by an authorization to the bank to block the amount of the

application money in the investor’s bank account.

 Benefit of ASBA is that the money goes out of the investor’s bank

account only on allotment, till then it earns interest

 Money transferred is the exact application money due on account

of the allotment, investor does not have to wait for any refund.

 ASBA, which was originally envisaged for public issues in the

capital market, has now been extended to mutual fund NFOs

3.Electronic Modes of Payment

Digital payment mediums or electronic payment mediums use

digital modes for making and receiving payments.

Advantages:

 ease and speed

 safety of funds and provides a record of funds usage

Disadvantages

 Risk of data theft

 Difficult for a person not comfortable with Technology

3.Electronic Modes of Payment
 Internet Banking is most commonly used digital payment service-
access to banking services 24*7.Allows fund transfer to own & third
party accounts,online bill payments,online shopping etc..
 NEFT,IMPS,RTGS,SWIFT

 Before money is remitted, it is advisable to get the proper bank

account details from the AMC / distributor
 Information will be in application form

 Unique transaction reference number generated by bank has

to be appended with application as proof of transfer
 SI/ECS-for investment in SIP
4.M-Banking

(i)UPI-convenient way for investment and transaction purpose.

 UPI-fund transfer between accounts through the mobile app -

BHIM, SBI UPI , HDFC UPI , iMobile, PhonePe app

 After downloading the app,VPA(Virtual Payment Address) which

links user’s bank account through registered mobile number with

the bank

 You can also receive funds using the UPI.

 A new version of the UPI allows transfer of funds using the

Aadhaar number instead of a VPA

4.M-Banking-Net Banking, Debit cards, UPI are most accepted ones
(ii)AEPS-allows bank to bank transaction using the Aadhar number
 Aadhaar number has to be linked to the bank account

 Uses fingerprint of the individual as password to authorize

transactions ,is secure mode for fund transfer
(iii)NUUP-allows transactions without a smartphone & internet
 The code*99# dialed from phone registered with a bank for a bank
account allows transactions such as making payments, checking
balances, fund transfers and getting a mini statement. Most
leading banks support this service & currently available in 11
regional languages.
4.M-Banking
(iv)Cards-commonly used mode of digital payments
 Debit cards,Credit Cards,Prepaid Cards

 PIN may be required to confirm the transaction in case of a debit

card. OTP for Credit card .
 drawback is -merchant may have to pay a charge on each transaction.

(v)E-Wallets-virtual /digital version of the physical wallet

 Money is loaded & used to make payments/fund transfer(E-
wallet).Cannot transfer money to bank account.
 No PIN/Password,unauthorized use by anyone who gets access to
mobile phone. Paytm, State Bank Buddy, ICICI Pockets &FreeCharge
5.One Time Mandate(OTM)
 Payment facility that authorizes the bank to process debits bank
account raised by a specified MF for purchase of units.
 Bank Name,A/c No,Type,IFSC,MICR,Cancelled cheque.

 Frequency at which debits can be made to be selected-Monthly,

Quarterly,Half Yearly
 The debits happen through the National Automated Clearing
House (NACH).
 Eliminates the need for the investor to initiate payment every time
a purchase transaction is conducted.
 One-time process to register a bank account under this facility
5.One Time Mandate(OTM)
 Existing investor also can register by submitting a form

 New investor can submit along with the MF application form

 Investors can specify amount that can be debited on daily basis

 Period for which OTM will be valid needs to be given

 Registering OTM takes 3 to 4 weeks

 OTM mandate is at folio level-Fresh lump sum purchase,

additional purchase, SIP investments.

 Can be cancelled by submitting the OTM form indicating

cancellation.
6.Cash Payments
 Mutual funds usually do not accept cash. Small investors,(not
tax payers & not have PAN/bank accounts are allowed cash to
the extent of Rs. 50,000/- per investor ,per MF,per FY
 subject to compliance with Prevention of Money Laundering
Act,2002(PMLA) & SEBI Circulars on Anti Money Laundering
(AML) & other applicable AML rules, regulations & guidelines.
 This facility is available only for resident individuals, sole
proprietorships and minors investing through their guardians
 Repayment in form of redemptions, dividend payments etc. can
be only through the banking channel.
 The sale and re-purchase prices are a function of the

applicable NAV.

 In order to ensure fairness to investors, SEBI has

prescribed cut-off timing to determine applicable NAV.

 The provisions, which are uniformly applicable for all

mutual funds, are as follows: (The above cut-off timing is

not applicable for NFOs and International Schemes. )
 Time Stamping is a mechanism to

ensure that the cut-off timing is strictly

followed.
 Both NSE & BSE have extended trading platform to help the SE

brokers become a channel for investors to transact in MF Units.

 NSE’s platform is called NEAT MFSS.(National Electronic

Automated Trading,MF Servics System)

 BSE’s platform is BSE StAR Mutual Funds Platform.

 The list of eligible schemes for transaction on these platforms

are notified by the respective mutual funds.

 Both platforms are open from 9 am to 3 pm on every working

day.
 Fresh subscriptions in a MF, as well as additional

purchases are possible.

 Similarly, redemptions are permitted.

 Each of these transactions may be in physical form or

demat form.

 stock exchanges only offer a transaction platform, but

they do not replace the RTAs.

 MFU is a transaction aggregating platform that connects
investors, RTAs, distributors, banks, AMCs and others. It
facilitates the distributors with online access to submit
investor transactions .
 This platform provides them with a single point for Time-
stamping of transactions, single point for document
submission, paperless transaction facility, provide login
facility for their clients;
 Investors who register on the MFU is allotted a Common
Account Number (CAN) under which all their MF holdings
are consolidated. (KYC Compliant)
 Dividend Payout, Growth and Dividend Re-Investment Options

 Most mutual fund schemes offer two options – Dividend and

Growth. A third option, is the Dividend re-investment Option.
 Different options within a scheme having the same portfolio.

 The portfolio returns are the same for all three options.

 They differ in the structure of cash flows and income accruals for
the unit-holder, and the Unit-holder’s taxability, number of units
held and value of those units.
 The post-tax return from each of these options will therefore be
different.
 In a dividend payout option, the fund declares a dividend
from time to time
 When a dividend is paid, the NAV of the units falls to that
extent.
 Debt schemes need to pay an income distribution tax on the
dividend distributed. This tax payment too reduces the NAV.
 The reduced NAV, after a dividend payout is called ex-
Dividend NAV. After a dividend is announced, and until it is
paid out, it is referred to as cum-Dividend NAV.
 the dividend payout does not change the number of units
held by the investor. Not Taxed as per current laws
 In a dividend re-investment option, as in the case of

dividend payout option, NAV declines to the extent of

dividend & income distribution tax. The resulting NAV is
called ex-dividend NAV.

 However, the investor does not receive the dividend in his

bank account; the amount is re-invested in the same scheme

and additional units are allotted to the investor.

 Dividend is not declared in a growth option.The NAV would

therefore capture the full value of portfolio gains.

Example:

Consider the example of investors A, B, C each of whom

invest in 100 units of a mutual fund scheme at an NAV of
Rs.10 in the growth, dividend and dividend reinvestment
option, respectively. The NAV appreciates to Rs.12 and
the mutual fund declares a dividend of 10 percent.
a. What is the dividend amount that the investors are
entitled to?

b. Which of the investors in the scheme are entitled to

receive the dividend?

c. How will the dividend be received by B and C?

d. How many additional units will be received by C?

e. What is the value of investment and return earned by

each investor calculated on the ex-dividend date?
a)Dividend amount= 10% of face value of Rs.10, Re.1 per
unit.
b)Investors -dividend & dividend reinvestment option, i.e.
investors B, C are entitled to receive the dividend.
c)B will be paid out the dividend of Rs.100 while the
dividend amount of Rs.100 due to C will be reinvested in
the scheme at the ex-dividend NAV of Rs.11 (Rs.12
(NAV)- Re1 (Dividend))
d) C will receive Rs.100/Rs.11 =9.09 additional units on
account of the dividend reinvested.
e) A: Value of the investments is Rs.1200. Rs.200 is earned
as capital gains from the appreciation in the NAV from
Rs.10 to Rs.12
B: The value of the investment is Rs.1100 (100 units x
Rs.11). Rs.100 is earned as dividend and Rs.100 as capital
gains from the appreciation in the NAV from Rs.10 to
Rs.11 ex-dividend. The total return earned is Rs.200
C: The value of the units is Rs.1200 (109.09 units x Rs.11).
The units held goes up after the re-investment of
dividend to 109.09 units. The NAV comes down to Rs.11
after the payment of dividend. The returns earned are
Rs.100 as capital gains on the original 100 units held and
Rs.100 earned as dividends that is re-invested.
 MF has tailor made investments & structure payouts to suit
specific needs and goals
 Systematic transactions Systematic Investments, withdrawals
& transfers
 Systematic Investment Plan (SIP)

 SIP is an approach where the investor invests constant amounts

at regular intervals
 it averages the unit-holder’s cost of acquisition since more units
are bought for the same amount of investment when the
price/markets are down and fewer units when the
price/markets are high.
 Systematic Investment Plan (SIP)

 Rupee Cost Averaging: Systematic investing allows

investors to buy into a volatile market over time at an

average price without having to predict market
movements.

 Done by Post-Dated Cheques(PDC’s),ECS or Standing

Instruction(SI)

 SIP can be fresh purchase or additional purchase or during

NFO also
 Systematic Withdrawal Plan (SWP)

 Investors do not want to risk redeeming all their units

when market is down. Investors can therefore opt for the

safer route of offering for re-purchase, a constant value of
units over a period of time

 The effect of exit loads will increase the number of units

that needs to be redeemed to withdraw a fixed amount of

money since it reduces the effective price for the investor

 Amount, periodicity and period has to be given

 Systematic Transfer Plan (STP)

 This is a variation of SWP.

 In SWP the constant amount is paid to the investor at the pre-

specified frequency, in a STP, the amount that is withdrawn from a

scheme (called the source scheme) is re-invested in some other
scheme (called the target scheme) of the same mutual fund.
 Thus, it operates as a SWP from the first scheme, and a SIP into the

second scheme
 If it is one transaction then it is SWITCH ,multiple then it is STP

 A switch is a redemption from one scheme and a purchase into

another combined into one transaction.

 Dividend Transfer Plan (STP)

 facility that allows investors to invest the dividend earned

in a mutual fund investment into another scheme of the

same mutual fund
 Ex: dividends earned from debt funds into equity funds

and dividends earned from equity funds into debt funds

 The investor must hold units in the dividend option of a

scheme to sign up for this facility. Once the investor

registers a DTP, any existing instruction for dividend
payout or dividend re-investment will be overridden
 SIP Top-Up Facility

 Investors have the option to increase the SIP amount at

intervals chosen by them

 Renewing SIP

 renewal form has to be submitted giving details of the

scheme, plan and option, SIP amount, SIP date and

period.
 Process of transferring units to the person entitled to receive
it in the event of the death of the unit holder.
 Depends upon the folio conditions of joint holding and
nomination.
 If the first holder passes away, the second holder is
substituted as first holder.
 In a singly held folio with nominations, the units are
transferred to the nominee.
 If there are no nominations in the folio, the units are
transmitted to the legal successors.
 Transmission to surviving unitholders in the event of
the death of one or more unitholders
i. Letter from surviving unitholder(s) to the MF requesting
transmission of units
ii. Death certificate in original or photocopy duly notarized or
attested by a gazette officer or bank manager
iii. Details of the bank account of the new first unitholder in
specified format attested by bank manager or along with a
cancelled cheque or bank statement bearing the account and
holders’ details.
iv. KYC of surviving holder if not already available
 Transmission to Nominee on death of sole/all unitholders

i. Letter from claimant(s) to the MF requesting transmission of units

ii. Death certificate(s) in original or photocopy duly notarized or

attested by a gazette officer or bank manager

iii. Details of the bank account of the new first unitholder (nominee) in
specified format attested by bank manager or along with a cancelled
cheque or bank statement bearing the account and holders’ details.

iv. KYC of claimant(s)

v. If the transmission value exceeds Rs. 200,000 then an indemnity bond

in the prescribed format has to be given by the nominee
1. As per SEBI regulations, foreign nationals are
permitted to invest in Indian mutual funds, subject to
KYC.
a. True
b. False

2. PAN Card is not required for mutual fund

investments below Rs 50,000 per mutual fund per
financial year, where payment is in cash.
a. True
b. False
3. Investments in mutual fund can be made using _____.
a. Cheque / DD
b. Remittance
c. ASBA
d. Any of the above

4. Cut-off timing guidelines are not applicable for _____.

a. NFOs
b. International Funds
c. Both of the above
d. None of the above
5. STP is a combination of SIP and SWP.
a. True
b. False

6. Investors’ KYC details are stored in the server of

_____.
a. AMC
b. AMFI
c. SEBI
d. KRA