CHAPTER 9 INVESTOR SERVICES
- Units in a mutual fund scheme are offered to investors for the first time through a New Fund Offer (NFO).
- The Asset Management Company (AMC) decides on a scheme to take to the market.
- AMC prepares the Scheme Information Document for the NFO. Which needs to be approved by the Trustees and the Board of Directors (BoD) of the AMC.
- Once the document is approved, it is then filed with SEBI. SEBI may make observations on the SID, which need to be incorporated. SEBI makes observations only and does not approve or disapprove the OD.
- The AMC decides on a suitable time-table for the issue, keeping in mind the market situation.
- The AMC launches its advertising and public relations campaigns to make investors aware of the NFO. These need to comply with SEBI’s advertising code.
- The AMC holds events for intermediaries and the press to make them familiar with the scheme, its unique features, benefits for investors, etc.
- The Scheme Documents and Application Forms are distributed to market intermediaries, and circulated in the market, so that investors can apply in the NFO
- Important Points to Remember regarding NFO Process
NFOs except ELSS can remain open for a maximum of15 days.
Allotment of units or refund of money, whatever the case may be, must be done within 5 business days of closure of the scheme.
Open-ended schemes have to re-open for sale or re-purchase within 5 business days of the allotment.
New Fund Offer (NFO) Price is the price per unit that the investors have to pay to invest during the NFO.
Ongoing price for purchase, redemption (sale) /switch outs (to other schemes/plans of the Mutual Fund) by investors is the price at which the investor purchases or receives redemptions/switch outs.
- Each mutual fund has to offer two plans to the investors, viz., regular plan and direct plan.
- The direct plan shall hav e a lower expense ratio excluding distribution expenses, commission, etc., and no commission shall be paid from such plans. Since the TER is different in both cases, the plans will have separate NAVs.
- The reduced NAV, after a dividend pay-out is called ex-Dividend NAV. After a dividend is announced, and until it is paid out, it is referred toas cum-Dividend NAV.
- In a dividend re-investment option, the investor does not receive the dividend in his bank account; the amount is reinvested in the same scheme and additional units are allotted to the investor.
- Subject to the receipt of the specified minimum subscription amount for the scheme, full allotment is made to all valid applications received during the New Fund Offer.
- Allotment of units and dispatch of allotment advice to FPIs (Foreign Portfolio Investors) is subject to RBI approval if required.
- The price at which units are sold to an investor as part of ongoing sales in an open-ended scheme is the sale price, which in turn is the applicable NAV.
- In a rights issue, the price at which the units are offered is clear at the time of investment.
- In a bonus issue, the investor does not pay anything. The fund allots new units for free.
- Mutual funds issue monthly the statement of account every month if there is a transaction during the month.
- Mutual Funds may issue the account statement annually to the unit-holders who have not transacted during the last six months.
- CAS is a single/combined account statement which shows the details of financial transactions made by an investor across all Mutual Funds and also other securities held in dematerialised (Demat) mode, over a given period of time under a PAN.
- The Depositories (NSDL or CDSL) issue CAS for each calender month to the unit holders if there has been a financial transaction in the folio in the previous month.
- Individual Investors are:
Resident Indian adult individuals, above the age of 18: They can invest, either singly or jointly (not exceeding three names).
Minors i.e. persons below the age of 18: Since they are not legally eligible to enter into a contract, they need to invest through their guardians.
Hindu Undivided Families (HUFs): Here, family members pool the family money (inherited) for investments. The head of the family (called “Karta”) invests on behalf of the family.
Against his name in the application, he would add the letters “HUF” to show that the investment belongs to the family.
Non-Resident Indians (NRIs)/Persons of Indian Origin (PIO) resident abroad: Indian citizens, who are working abroad, and their family residing abroad, are typical NRIs who invest in India.
Foreign investors: They can invest in equity schemes of MFs registered with SEBI after completing KYC process.
- Non-individual Investors are:
Companies / corporate bodies, registered in India
Registered Societies and Co-operative Societies Trustees of Religious and CharitableTrusts
Trustees of private trusts
Partner(s) of Partnership Firms
Association of Persons or Body of Individuals, whether incorporated or not
Banks (including Co-operative Banks and Regional Rural Banks) and Financial Institutions and Investment Institutions
Other Mutual Funds registered with SEBI etc
- In Direct Plan Investors have the option to invest directly without routing the investment through a distributor.
- A mutual fund investment can have up to three holders.
- An investment made for a minor (less than 18 years) is done through a guardian who complies with the KYC and PAN requirements and all other formalities as if the investment was for themselves.
- In the case of investments by a Power of Attorney (PoA) holder on behalf of an investor (issuer), both the PoAholder and issuer should comply with the KYC and PAN requirements.
- Along with the application form, each applicant should provide the KYC acknowledgment letter (as proof of compliance with the KYC norms). Also, additional KYC details relating to occupation, gross
annual income or net-worth, etc. are mandatorily collected in the application form for both individual and non-individual applicants.
- For applicants, including guardians, whose country of birth/citizenship/nationality/tax residency is other than India, the application requires additional information under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS).
- It is mandatory for investors to provide the bank details of the sole/first holder of the folio in the application form.
- Investors have the option to hold the units in physical mode or demat mode. If the units are to be held in a demat account then the name and ID of the Depository Participant with whom the investor holds the account, and details of the beneficiary account has to be provided.
- The applicant can make a nomination in favour of a maximum of three nominees and indicate the percentage to each nominee.
- The Scheme Information Document (SID) and Key Information Memorandum (KIM) provides information on the minimum application amount.
- Fresh purchase or initial purchase of mutual fund units in a scheme can be made during the new fund offer (NFO) period or even subsequently in an open-ended scheme, during the open offer period.
- A transaction slip can be used to make additional purchases in an open-ended scheme in which the investor has already invested.
- Units held in de-materialized form have to be redeemed through the depository participant (DP).
- A switch is a redemption from one scheme and a purchase into another combined into one transaction.
- Payment Mechanism for mutual fund purchases:-
1.) Internet Banking
2.) M-Banking
3.) Unified Payment Interface
4.)Application Supported by BlockedAmount
5.)Aadhaar Enabled Payment Service
6.) National Unified USSD Platform
7.) Debit Cards
8.) Wallets
9.) One-Time Mandate (OTM)
10.) Cheque/Demand Draft
11.) Cash Payments
- RTGS transfers are instantaneous. RTGS means Real time gross settlement.
- NEFT means National Electronic funds transfer.
- SWIFT used for international transfer.
- National Automated Clearing House (NACH) is a centralised clearing system launched by the National Payments Corporation ofIndia (NPCI).
- NACH aims to replace and consolidate multiple existing Electronic Clearing Service (ECS) systems across India and create a faster and more efficient clearing platform.
- The Unified Payment Interface (UPI) allows fund transfer between accounts through the mobile app.
- Application Supported by Blocked Amount (ASBA) is a facility where the investment application in a New Fund Offer (NFO) is accompanied by an authorization to the bank to block the amount of the application money in the investor’s bank account.
- Aadhaar Enabled Payment Service (AEPS) allows bank to bank transaction using the Aadhaar number of the customer.
- National Unified USSD Platform (NUUP) based mobile banking allows transactions even without a smartphone and internet.
- Mutual funds purchases using credit cards are not allowed.
- Money is loaded to the E-Wallet and used as required to make payments and transfer funds to other E-Wallets. However, they cannot beused to transfer money to a bank account.
- One-Time Mandate (OTM) is a payment facility that investors can use to authorize their bank to process debits to their specified bank account raised by a specified mutual fund for purchase of units.
- DDs are accepted only if the investor is from a location where there is no official collection centre for the application.
- Small investors, who may not be tax payers and may not have PAN/bank accounts, such as farmers, small traders/businessmen/workers are allowed cash transactions for purchase of units in mutual funds to the extent ofRs. 50,000/- per investor, per mutual fund, per financial year.
- Although investment can be made in cash, repayment in form of redemptions, dividend payments, etc. can be only through the banking channel.
- Payment Mechanism for Repurchase of Units
Cheque
Electronic Modes (Direct credit/RTGS/NEFT/NACH) InstantAccess Facility (IAF)
- An individual investor can register up to five bank accounts and a non-individual investor,ten.
- In case of NRI investments, if the payment for the investment was made through an NRO account, then the registered account should also be of the same type. If payment was routed through an
NRE account, then the registered accounts can bean NRO or NRE account.
- IAF facilitates credit of redemption proceeds in the bank account of the investor on the same day of the redemption request.
- Points of acceptance have time stamping machines with tamper-proof seal. Opening the machine for repairs or maintenance is permitted only by vendors or nominated persons of the mutual fund.
Such opening of the machine has to be properly documented and reported to the Trustees.
- The daily time stamping of application does not start with serial 1.
- For online transactions, the time as per the web server to which the instruction goes, is used in determining the NAV for sale / re-purchase transactions.
- Applications of financial and non financial transactions are stamped with automatically generated Location Code, Machine identifier, Serial number, Date &Time.
- All investors, both individual and non-individual, including joint holders, NRIs, PoA holders and its issuers, and guardians in the case of minors have to be KYC compliant, irrespective of the investment value.
- Providing Permanent Account Number (PAN) is compulsory for all mutual fund investments. Exception has been made for Micro-SIPs i.e. SIPs where annual investment (12 month rolling or April-March financial year) does not exceed Rs. 50,000.
- SEBI has instituted a centralised KYC process for the capital market, including mutual funds.
- The Government of India authorised the Central Registry of Securitisation and Asset Reconstruction and Security Interest of India (CERSAI) to act as and to perform the functions of the Central KYC
Record Registry. e-KYC service launched by UIDAI is also a valid process for KYC verification.
- If the investors choose to hold the units in demat form or for applicants who choose to invest through the stock exchange infrastructure, the KYC performed by the Depository Participant will be
considered in compliance with the KYC norms.
- Where investment is made by a minor, KYC requirements have to be complied with by the Guardian.
- In the case of investments by a Power of Attorney (PoA) holder on behalf of an investor, KYC requirements have to be complied with, by both, investor and PoAholder.
- 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.
- Additional Requirements applicable for Institutional Investors
A proof should be submitted which shows that the institute is eligible to invest. Authorization for the investing institution to invest.
Document which proves that, appointed person is authorised to sign the documents on behalf of the investing institution.
Details of the ‘Ultimate Beneficial Owner’(UBO) of the investments.
CUT OFF TIME FOR LIQUID FUNDS
CUT OFF TIME FOR EQUITY AND DEBT SCHEME: PURCHASE
CUT OFF TIME FOR EQUITYAND DEBT SCHEME: RE-PURCHASE
- Under Foreign Account Tax ComplianceAct and Common Reporting Standards, the application for
- m requires information to be provided if the citizenship/nationality/place of birth/tax residency are places other than India for all categories of investors.
- Through SIPinvestment, one can get the benefit of 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.
- In SWP a fixed amount of money is redeemed from a mutual fund scheme at a fixed interval and is credited in the bank account ofinvestor.
- In SWP, some schemes even offer the facility of transferring only the appreciation or the dividend.
- SWP helps to minimise the risk of redeeming all the units during a market trough.
- 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.
- STP is used by investors to make periodic investments into a volatile market such as equity, or to rebalance a portfolio, orto book profits.
- A switch is a redemption from one scheme and a purchase into another combined into one transaction.
- Dividend Transfer Plan (DTP) is a facility that allows investors to invest the dividend earned in a mutual fund investment into another scheme of the same mutual fund.
- In case of systematic transactions, a default SIP date, frequency, end date may be specified by the scheme which will be applied in case the investor does not make a selection.
- To renew an SIP, a renewal form has to be submitted giving details of the scheme, plan and option, SIP amount, SIPdate and period.
- An SIP can be cancelled by giving due notice of the same to the AMC by providing details of the SIP such as folio number, scheme name, option, bank details and mode of payment.
- The nomination made in a folio applies to all the investments held under the folio. Nomination can be made in favour of a maximum of three nominees.
- The change or cancellation of nominee has to be made by all the unit-holders who made the original nomination, irrespective of the mode of holding.
- Mutual fund units can be pledged by unit holders to Banks, NBFCs and other financiers. Once Units are pledged, the Unit-holder/s cannot sell or transfer the pledged units, until the pledgee gives a no objection to release the pledge.
- The change in the status of an investor from minor to major will require the PAN and KYC compliance of the investor to replace that of the guardian.
- Once the minor become major, financial transactions are disallowed in their account.
- Once an NRI becomes a RI, he cannot operate his NRO/NRE/FCNR (B) accounts
- Schemes other than ELSS can remain open for subscription for a maximum of Fifteen (15) days.
- Schemes other than ELSS need to allot units or refund money within 5 business days of closure of the NFO.
- Unit certificate has to be issued within 5 working days of the receipt of request for the certificate.