A mutual fund is a financial mechanism by which pooled resources of multiple investors are invested in different forms of securities. Investors are allotted units for their investments and unit holders share the resulting profits and losses in proportion with their investments. Since the pooled resources are invested in different securities, risk gets diversified and since the investments are done by experienced, professional fund manager, investors are assured significantly better returns at relatively low risk. From time to time, mutual funds come out with different schemes that have varied objectives. And to be eligible to solicit funds from investors, it is necessary that mutual funds are registered with the Securities and Exchange Board of India.

The Objectives of SEBI are as follows –

• To protect the interest of investors in securities
• To regulate, promote development, formulate policies and supervise mutual funds.

A mutual fund is set up in the form of a trust, which has Sponsor, Trustees, Asset Management Company (AMC) and Custodian.

a) The Trust is established by a sponsor or more than one sponsor who is like promoter of a company. The Trust is to be registered under the Indian Trust Act 1882

b) The Trustees of the mutual fund hold its property for the benefit of the unit holders.

c) Asset Management Company (AMC) approved by SEBI manages the funds on behalf of its Unitholders, by making investments in various types of securities. The AMC is registered under the Companies Act.

d) Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody.

The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are mandatorily required to be registered with SEBI before they launch any scheme.

Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme as reduced by the allowable expenses. Since market value of securities change every day, NAV of a scheme also varies on day to day basis.

The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date net of allowable expenses. For example, if the market value of securities of a mutual fund scheme is Rs 200 lakhs (net of expenses) and the mutual fund has issued 1 lakhs units of Rs. 10 each to the investors, then the NAV per unit of the fund is Rs.20.

NAV is required to be disclosed by the mutual funds on a regular basis - daily or weekly - depending on the type of scheme.

Entry Load : Subscription (Sale) Price = Applicable NAV * (1+Entry Load)

E.g. If the Applicable NAV is Rs. 10 and Entry Load is 1%, then the subscription price will be:
Rs. 10*(1+0.01) = Rs. 10.10

*Unit holders may note that the Regulations do not permit any Entry Load for subscription of Units, and accordingly, the subscription price will be the Applicable NAV.

Exit Load: Redemption (Repurchase) Price = Applicable NAV * (1-Exit Load)

E.g. If the Applicable NAV is Rs. 10 and Exit Load is 1%, then the redemption price will be :
Rs. 10*(1-0.01) = Rs. 9.90.

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge, in the form of load, will be payable.

For Subscription in Other Schemes (Other than Liquid and Overnight Funds)

 These changes will be effective from January 1st 2021.

Key Information Memorandum (KIM)

   KIM is a summary of Scheme Information Document (SID) and Statement of Additional Information (SID) which are two important parts of an offer document.

The key sections which are covered in an KIM are:

1. The name of the AMC
2. The name of the fund manager
3. Plans and options under the scheme
4. The performance of the scheme vis-à-vis its benchmark etc.

 The key sections which are covered in SID are:

1. Risk factors
2. Information about the scheme
3. Details of the units and offer
4. Details of fees and expenses
5. Rights of unit holders
6. Details of penalties, pending litigation or proceedings

  The key sections which are covered in SAI are:

1. Information about Sponsor, Asset Management Company & Trustee Company
2. Details of how to apply for an mutual fund
3. Details of rights of Unitholders
4. Investment valuation norms for securities and other securities
5. Tax, legal and general obligations

You may refer SAI and you will be able to find all these details in that document.

For fund manager details, you may refer SID wherein complete details of the fund manager are provided.

Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms. Forms can be submitted with mutual fund through the agents and distributors who provide such services or can be directly submitted with the fund house at the designated Investor Service Centers (ISC’s) or Investors can also invest online through Mutual Fund website.

Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the New Fund Offer (NFO) and thereafter they can buy or sell the units of the scheme on the Stock Exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. Generally, these mutual funds schemes disclose NAV on weekly basis.

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme depending on its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option or growth option and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time and dividend schemes are good for investors looking for income during the period they remain invested in the scheme.

Income / Debt Oriented Scheme

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are comparatively less risky as compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds may get affected due to change in interest rates, inflation etc. For instance, if the interest rates fall, NAVs of such funds are likely to increase and vice versa.

Balanced Fund

The aim of balanced funds is to provide both growth and regular income as such schemes invest in both, equities and fixed income securities in the proportion indicated in their offer documents. Such schemes are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and balance in debt instruments. These funds get affected due to fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund or Overnight Fund

These funds are income funds and their aim is to provide easy liquidity, preservation of capital and low to moderate income. These schemes invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper, government securities, overnight instruments such as Repurchase Agreements (Repo) etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for investors looking to park their surplus funds for short period.

GILT Fund

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds

Index Funds replicate the portfolio of a particular underlying index such as the BSE Sensex index, S&P NSE 50 index (Nifty), etc. These schemes invest in securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme.

A scheme that invests primarily in other schemes of the same mutual fund or other mutual funds is known as a FoF scheme. A FoF scheme enables the investors to achieve greater diversification through one scheme. It spreads risks across a greater universe.

ETFs are mutual fund units that investors can buy or sell at the stock exchange. This is in contrast to a normal mutual fund unit that an investor buys or sells from the AMC (directly or through a distributor). In the ETF structure, the AMC does not deal directly with investors or distributors. Units are issued to a few designated large participants called Authorised Participants (APs). The APs provide buy and sell quotes for the ETFs on the stock exchange, which enable investors to buy and sell the ETFs at any given point of time when the stock markets are open for trading.

ETFs therefore trade like stocks and experience price changes throughout the day as they are bought and sold. Buying and selling ETFs requires the investor to have demat and trading accounts.

A capital protection-oriented scheme is typically a hybrid scheme that invests significantly in fixed-income securities and a part of its corpus in equities. These are close-ended schemes that come in tenors of fixed maturity e.g. three to five years.

Structure of the scheme - Example

If the fund collects INR 100, it invests INR 80 in fixed-income securities and INR 20 in equities or equity related instruments. The money is invested in such a way that the INR 80 portion is expected to grow to become INR 100 in three years (assuming that the scheme has a maturity period of three years). Thus, the aim is to preserve the INR 100 capital till maturity of the scheme.

Thus, the scheme is oriented towards protection of capital and not with guaranteed returns. Further, the orientation towards protection of capital originates from the portfolio structure of the scheme and not from any bank guarantee or insurance cover. Investors are neither offered any guaranteed/indicated returns nor any guarantee on repayment of capital by the scheme.

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

Mutual funds cannot increase the exit load beyond the level mentioned in the offer document. Any change in the load will be applicable only to prospective investments and not to the original investments. In case of imposition of fresh loads or increase in existing loads, the mutual funds are required to amend their SID so that the new investors are aware of loads at the time of investments. As no entry load can be charged for mutual fund schemes in India, no change can be made with respect to entry load.

The price or NAV a unit holder is charged while investing in an open-ended scheme is called sales price.

Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if applicable.

Expense ratio represents the annual fund operating expenses of a scheme, expressed as a percentage of the fund‟s daily net assets. Operating expenses of a scheme include management fees, custody fees, registrar & transfer agent fees, investor communication related expenses, advertising related expenses etc.

An expense ratio of 1% per annum means that each year 1% of the fund‟s total assets will be used to cover expenses. Information on expense ratio that may be applicable to a scheme is mentioned in the offer document. Currently, in India, the expense ratio is fungible, i.e., there is no limit on any particular type of allowed expense as long as the total expense ratio is within the prescribed limit. For limits on expense ratio, refer to regulation 52 of the SEBI (Mutual Funds) Regulations,1996.

Consolidated Account Statement (CAS) is a single/combined account statement which shows the details of financial transactions made by an investor during a month across all Mutual Funds and also includes other equity & debt investments held in dematerialised (Demat) mode. The transactions and holdings are clubbed on the basis of PAN submitted by the investor.

As stated above, no entry load can be charged for any mutual fund scheme. An investor can chose to pay a distributor based on the investor‟s assessment of various factors including the service rendered by the distributor. However, for investments made through a distributor, commission is paid directly by AMC to the distributor such that the total expense ratio for an investor is within the limits on expense ratio specified under regulation 52 of the SEBI (Mutual Funds) Regulations, 1996. Hence, the cost borne by investors remains within the limit prescribed under SEBI Regulations.

Transaction Charge:

Further, a transaction charge of INR 150 and INR 100 per subscription of INR 10,000 and above by a new and an existing investor, respectively, can be levied by distributor. This transaction charge can be levied only if a distributor has opted in to levy transaction charge for that type of mutual fund scheme. Further, the transaction charge, if any, is to be deducted by the AMC from the subscription amount and paid to the distributor; and the balance is to be invested.

Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unit holders by giving them option to exit the scheme at prevailing NAV without load, if any. The change shall happen on a prospective basis.

Investors should also refer to the product labelling of the scheme. All the mutual funds are required to label their schemes on the following parameters:

a. Nature of scheme such as to create wealth or provide regular income in an indicative time horizon (short/ medium/ long term).

b. A brief about the investment objective (in a single line sentence) followed by kind of product in which investor is investing (Equity/Debt).

c. Level of risk depicted by a pictorial meter (known as a riskometer) as under:

• Low Risk
• Low to Moderate Risk
• Moderate Risk
• Moderately High Risk
• High Risk
• Very High Risk

However, investors should consult their financial advisers if they are not clear about the suitability of the product.

Product label is disclosed in:

a. Front page of initial offering application forms, Key Information Memorandum (KIM) and Scheme Information Documents (SIDs).

b. Scheme advertisements.

ASBA is a facility provided by banks to investors in new fund offers (NFOs) of mutual funds. If you apply for an NFO via ASBA, your application amount gets blocked in your bank account. While the amount stays in your account, it cannot be used until the MF unit allotment is done.

For more information, refer to FAQs on ASBA available on SEBI website at http://www.sebi.gov.in/cms/sebi_data/commondocs/asbaprocess1_p.pdf

An investor must mention clearly their PAN, name, address, number of units applied, scheme name along with option / sub option and such other information as required in the application form. They must give their bank account number so as to avoid any fraudulent encashment of any cheque /draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account number at a later date should be informed to the mutual fund immediately.

All the mutual funds have their own web sites. Investors can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI also publishes useful literature for the investors.

Investors can log on to the web site of SEBI at www.sebi.gov.in and refer the  "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc..

There are a number of other web sites which give a lot of information of various schemes of mutual funds including performance over a period of time. Many publications also provide useful information on mutual funds on a periodic basis. Investors may approach their agents and distributors to guide them in this regard.

SEBI has mandated mutual funds to compulsorily launch a direct plan for direct investments, i.e., investments not routed through a distributor, from 01 January 2013. Such separate plan has a lower expense ratio excluding distribution expenses, commission, etc., and no commission is to be paid from such plans. The plan also has a separate NAV.

Investment can be made in lump sum, i.e. a onetime payment, or through a Systematic Investment Plan (SIP).

A SIP allows an investor to invest regularly. One puts in a small amount every month that is invested in a mutual fund.

A SIP allows one to take part in the stock market without trying to second-guess its movements.

For example

X decides to invest INR 1,000 per month for a year

When the market price of shares fall, X benefits by purchasing more units; and is protected by purchasing less when the price rises as explained below

Within one year, X has 1,186 units by investing just INR 1,000 every month at an average cost of 12000/1186.15 = 10.1170. This is as against 12,000/10 = 1,000 units or 12000/11.5 = 1043.5 units or 12000/9 = 1,333.3 units if X had invested lump sum on 1 Jan, 1 Jun or 1 May, respectively

An investor should take into account his risk taking capacity, age factor, financial position, etc.

As already mentioned, the schemes invest in different type of securities as disclosed in the scheme related document and offer different returns and risks. Investors may also consult financial experts before taking decisions.

Mutual funds are required to dispatch certificates or statements of accounts within five working days from the date of closure of the initial subscription of the scheme. The investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account issued by the mutual fund within five working days from the date of closure of initial public offer of the scheme and/or from the date of receipt of the request from the unitholders. The procedure of repurchase is mentioned in the scheme related documents.

Also, AMCs are required to send confirmation specifying the number of units allotted to the applicant by way of email and/or SMS‟s to the applicant‟s registered email address and/or mobile number as soon as possible but not later than five working days from the date of closure of the initial subscription list and/or from the date of receipt of the request from the unitholders.

A mutual fund is required to dispatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unit holder.

In case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present) for the period of delay.

There may be changes from time to time in a mutual fund scheme. The mutual funds are required to inform any material changes to their unit holders. Apart from it, many mutual funds send quarterly newsletters to their investors. At present, Scheme Information Document (SID) is required to be revised and updated at least once a year. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted.

Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc., can be carried out unless a written communication is sent to each unit holder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unit holders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme from close-ended to open-ended scheme.

The mutual funds are required to disclose full portfolios of all of their schemes on a monthly basis on their website. Portfolio disclosure on a half yearly basis is published in the newspapers. Mutual funds may also send the disclosure of half-yearly portfolios to their unitholders. The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements are also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc

Mutual Funds provide on their website, the list of names and addresses of investors in whose folios there are unclaimed amounts (dividend/redemption).The information provided herein shall contain name of investor, address of investor and name of Mutual Fund/s with whom unclaimed amount lies.

The website of Mutual Funds is also required to provide information on the process of claiming the unclaimed amount and the necessary forms/documents required for the same.

The information on unclaimed amount alongwith its prevailing value (based on income earned on deployment of such unclaimed amount) is separately disclosed to investors through the periodic statement of accounts/CAS sent to the investors.

SEBI takes up complaints against Mutual Funds registered with it and related issues. SCORES facilitates an investor to lodge his/her complaint online with SEBI and subsequently view its status.

Investors would find the name of contact person in the offer document of the mutual fund scheme who they may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of AMC and trustees are also given in the offer documents. Investors should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund with their complaints. If the complaints remain unresolved, the investors may approach SEBI for facilitating redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with it regularly. Investors may send their complaints to:

Securities and Exchange Board of India

Office of Investor Assistance and Education (OIAE)

Plot No.C4-A , “G” Block, 1st Floor

Bandra-Kurla Complex,

Bandra (E), Mumbai – 400 051.

Phone: 26449199- Bandra (E), Mumbai – 400 051.

Phone: 26449199-88-77

Investors can also lodge their complaint on scores.gov.in

Online Mode - You can redeem your mutual funds online by visiting the official website of Trust Mutual fund (www.trustmf.com). In case you had purchased the mutual fund units by visiting a third-party web portal, you may redeem it using the same portal.

Process to redeem – Under the service request section, you will have to choose financial transaction form.

To access your mutual fund, you will need to log in to the website with the help of your folio number and/or your Permanent Account Number (PAN) and password selected by you.

Next, you will have to choose your scheme and select the number of units or amount that you would like to redeem.

You will then have to confirm your transaction.

Apart from redeeming your mutual funds online through Trust Mutual Fund website or other 3rd party web portal, you may also redeem via central service providers such as KFin Technologies – Registrar & Transfer Agent to the scheme.

Offline mode –

If you want to redeem your mutual funds through offline mode, go to Trust Mutual Fund website <Downloads<Forms<Service Request form to fill the Transaction form and fill details such the unit holder’s name, name of mutual fund scheme, folio number, number of units to be redeemed or amount to be redeemed from the scheme, plan details, etc. Once the form is filled, you will have to sign it and submit it to the designated office of the Registrar or any official point of service of the asset management company (AMC). The funds resulting from your redemption will be transferred to the unitholder’s registered bank account.

The funds relating to redemption of units depends on various factors:

NAV that is applicable on your fund units, which refers to the NAV fixed for the day and time when you apply for a redemption. As the Net Asset Value (NAV) for each day is announced post closing of the day, the time of the day when you request for redemption is crucial. However, the NAV of the day is applicable only for redemption requests that come by 3pm on a business day, or else the next day’s NAV is applicable.

Bank Accounts – You must keep your bank account that is linked and registered with your AMC, active. When you redeem your mutual funds, the proceeds of the fund are sent to your bank account registered with the AMC. In case that account is inactive, you may be required to submit a cancelled cheque of your new bank account or passbook or you might also have to present a declaration from the bank with the signature of your bank manager.

Turnaround Time – Generally the fund house would endeavor to adhere to the below mentioned timelines.

In case of equity or balanced funds, the redemption proceeds are credited on the 3rd business day from the day from the day of redemption. In case of debt or liquid funds, the redemption proceeds are credited by 1st business day from the date of redemption. This is subject to the condition that the redemption request is valid in all aspects i.e. scheme name / plan / option, unit or amount balance, signature match with the records at AMC’s end. 

Funds with Lock-in Period – Open ended schemes can be redeemed at any point of time, whereas some schemes like ELSS (Equity Linked Savings Scheme) cannot be redeemed up to three years from the investment date.

Charges on Redemption – Redeeming your funds might attract certain charges such as exit loads and taxes. The amount charged depends on the duration after which you have requested for redemption of funds. It is advisable to know about the charges before making the decision of redeeming your funds. You may approach your financial advisor for advice before planning to exit the fund.

For information, GST @ of 18% is applicable for all financial services effective July 1, 2017.

FATCA is an acronym for the Foreign Account Tax Compliance Act, a set of US Tax Regulations brought in by the US Government and enacted through the Internal Revenue Service (IRS), which is similar to Income Tax Department in India. It was enacted with the objective of tackling tax evasion through obtaining information in respect of offshore financial accounts maintained by USA residents and citizens

The primary goal of FATCA is to gain information (reporting) about U.S. persons. FATCA would help IRS to:

• detect and prevent offshore tax evasion by U.S. persons
• identify and collect the appropriate tax from US persons holding financial assets outside the US
• Increase transparency for the IRS with respect to U.S. persons that may be investing & earning income through non-US financial institutions.

CRS stands for Common Reporting Standard. To combat the problem of offshore tax evasion and avoidance and stashing of unaccounted money abroad requiring cooperation amongst tax authorities, the G20 and OECD countries working together developed a Common Reporting Standard (CRS) on Automatic Exchange of Information (AEOI). The CRS on AEOI was presented to G20 Leaders in Brisbane on 16th November, 2014.

The CRS on AEOI requires the financial institutions of the “source” jurisdiction to collect and report information to their tax authorities about account holders “resident in other countries, such information having to be transmitted “automatically’ on yearly basis. The information to be exchanged relates not only to individuals but also of shell companies and trusts having beneficial ownership or interest in the “resident” countries. Further, the reporting needs to be done for a wide range of financial products, by a wide variety of financial institutions including banks, depository institutions, collective investment vehicles and insurance companies.

India has joined Multilateral Competent Authority Agreement (MCAA) on Automatic exchange of Financial Account Information on June 3, 2015. In terms of MCAA, all countries which are signatory to the MCAA, are obliged to exchange wide range of Financial information after collecting the same from Financial Institutional in their country / jurisdiction.

Having signed these agreements, India is bound by the compliance required under FATCA & CRS.

KYC is an acronym for “Know your Client”, a term commonly used for Client Identification Process. SEBI has prescribed certain requirements relating to KYC norms for Financial Institutions and Financial Intermediaries including Mutual Funds to ‘know’ their clients. This is in the form of verification of identity and address, financial status, occupation and such other personal information. Applicant must be KYC compliant while investing with any SEBI registered Mutual Fund.

KYC is one-time exercise when dealing in securities market if done through a SEBI registered intermediary (broker, DP, Mutual Fund etc). Hence Investors don’t need to undergo the same exercise if done through another intermediary.

Currently, all investors (Individuals or Non Individuals) who wish to make an investment of Rs. 50,000 or above are required to be KYC Compliant. Please find the list of personnel who are required to be KYC compliant:

Joint Holders: Joint holders (including first, second and third if any, are required) to be individually KYC compliant before they can invest with any Mutual Fund. . e.g. in case of three joint holders, all holders need to be KYC compliant and copies of each holder’s KYC Acknowledgement must be attached to the investment application form with any Mutual Fund.

Minors: In case of investments in respect of a Minor, the Guardian should be KYC compliant and attach their KYC Acknowledgement while investing in the name of the minor. The Minor, upon attaining majority, should immediately apply for KYC compliance in his/her own capacity and intimate the concerned Mutual Fund(s), in order to be able to transact further in his/her own capacity.

Power of Attorney (PoA) Holder: Investors desirous of investing through a PoA must note that the KYC compliance requirements are mandatory for both the PoA issuer (i.e. Investor) and the Attorney (i.e. the holder of PoA), both of whom should be KYC compliant in their independent capacity and attach their respective KYC Acknowledgements while investing.

Investors must attach their KYC Acknowledgement along with the Investment Application Form(s) / Transaction Slip(s) while investing for the first time in every folio. Applications Forms / Transaction Slips not accompanied by KYC Acknowledgement are liable to be rejected by the Mutual Funds. If an investor does not obtain a KYC Acknowledgement, they will not be able to invest Rs. 50,000 or more in a Mutual Fund.

Investors must attach their KYC Acknowledgement along with the Investment Application Form(s) / Transaction Slip(s) while investing for the first time in every folio.

No, if there are deficiencies/lack of information/insufficiency of mandatory documentation observed in KYC Form, then the KYC Application would get rejected.

No. Once the KYC Acknowledgement is obtained and informed to a Mutual Fund, it will be registered against the folio and quoted in all future account statements. The same will exist in perpetuity, unless cancelled by CVL, authority responsible for registering and issuing KYC to all investors.

You can inform the Mutual Fund to update the KYC Acknowledgement against all the folios/accounts you have with it. However, each of the holders in these folios/accounts should be KYC Compliant.

Upon a Minor attaining the age of majority (i.e. on completing 18 years of age), he/she must be KYC Compliant and have KYC Acknowledgement of their own. The same should be informed to the Mutual Fund where he/she holds an investment, along with other details such as the Bank account number, Signature .

The soft copy of KYC application forms are available on the website of all Mutual Funds, AMFI and Central Depository Services (India) Limited (CDSL). You may also approach your distributor for a form. The same, duly completed along with the necessary attested documents, can be submitted at the Point Of Service (PoS) or mailed to your representative or Distributor who can complete the KYC formalities for you.

Yes. In addition to the certified true copy of the passport, certified true copy of the overseas address and permanent address is also required. If any of the documents (including attestations/ certifications) towards proof of identity or address is in a foreign language, they have to be translated to English for submission. The documents can be attested, by the Consulate office or overseas branches of scheduled commercial banks registered in India

The requirements applicable to an NRI will also apply to a PIO. However, additionally, he will need to submit a certified true copy of the PIO Card.

You should intimate your change of Name / Address / Status /Signature etc. to any PoS. You need to quote / submit a copy of your KYC Acknowledgement, and proof (in case of new address). You should provide for at least 7 days for the change of address to take effect with all the Mutual Funds with whom you are invested. Please note that you should not write to the Mutual Fund or its Registrar for the change of address (unless as a designated PoS). The specified form can be obtained from the AMFI/Mutual Fund website. All details of the holders in the Mutual Fund records will be replaced by the address details available in the CVL record.

The requirement of providing your PAN along with proof is sufficient for proof of identity. However, the current requirement for KYC requires the Mutual Fund to verify identity, address as well as obtain further information about the investor.

As per PMLA, it is mandatory for Mutual Funds to obtain financial status details from its investors. It is for this reason that the Income details are sought. Please note that no proof / income documents are required. The information given you in the KYC Application form are treated in a confidential manner and used for regulatory purposes if called for.

Yes. If there is a change in your income, which would effectively, change the income bracket that you have declared in the KYC Application form, you should apply to any PoS in the specified form. No proof is needed.

KYC Acknowledgement will be done on the photocopy of the form. Time stamping is not required on the KYC Acknowledgement. The mutual fund application counterfoil is used for time stamping which is given back to the investor.

Once the investor is KYC compliant, it will be required to intimate their KYC details to all the Mutual Funds with whom it has investments. The same will be updated in the records of the Mutual Fund.

Signature verification is done by Mutual Funds to protect an investor from frauds or losses of such nature. As such, Mutual Funds may follow extra due-diligence if signatures are not matching, such as getting Bank attestation for such transactions. This could be independent of the KYC procedure.

Scenario1
If the KYC (MIN) was completed by submitting the PAN, the Acknowledgement obtained at that time can be enclosed along with the Investment Application Form(s) / Transaction Slip(s) while investing for the first time in every folio as the PAN number will be stated on the said acknowledgement.

Scenario2
If the KYC (MIN) was completed without submitting the PAN but with other proof of identity documents, for such cases, CVL will send out a communication to the respective investors requesting them to submit self-attested copy of PAN card for KYC compliance.

Adding a nominee is not a mandatory requirement but beneficial to your folio as adding a nominee/s to your folio allows your investment to be claimed by them in an unfortunate event of your demise.

You can nominate up to 3 individuals among your friends or family whom you trust. You cannot nominate trusts, except a religious or charitable one; a society, a body corporate, a partnership firm, a Karta of a Hindu Undivided Family (HUF), or someone who holds the Power of Attorney of your folio. Please note: If you hold Power of Attorney to a Mutual Fund folio, you cannot add a nominee for that folio.

If you have appointed a single nominee to your folio, 100% of the MF will be allocated to the nominee. In case of multiple nominees, you are required to mention the percentage allocation for each of the nominees.

You can submit your nomination form at your nearest AMC branch or KFin Investor Service Centre (ISC). In case of more than one holder to a single folio, the nomination form must be signed by all joint holders irrespective of the holding basis. You can change/remove a nominee by means of a letter to the nearest KFin ISC. This can be done if and only if you made the original nomination as a unit holder of your folio on a single or joint basis.

If you are an NRI, you can nominate another NRI or a resident Indian to your folio. Similarly, a resident Indian can nominate an NRI on a non-repatriable basis.

In case you have partially redeemed or partially transferred funds from your investment portfolio, the existing nomination/s will apply to the remaining units / investment value.

The latest nomination will supersede or overwrite all previous nominations made with regard to the specific fund under consideration.

Upon the transfer of the units from your portfolio, the existing nomination stands revoked; you must make a fresh nomination for the funds transferred.

Transfer of units to the nominee shall be valid discharge by the AMC against the legal heir/s of the unit holder/investor.

In case of multiple folios with different holding basis for various joint holders, you need to submit separate nomination forms for each folio.

In case of multiple folios with the same holding basis for all joint holders, you may use a single form to provide all detail

You may submit your form for updating of your bank account details at any AMC branch or KFin ISC. Your letter must be signed by all unitholders of your folio. You must also submit the following documents for proof as listed below:

Proof of New Bank Account

Proof of Existing Bank Account

Proof of Identity

For Proof of New Account and Existing Account, kindly provide any one of the following documents:

Cancelled cheque (in original) or self-attested copy of cheque leaf. Or

Self-attested copy of bank statement/bank passbook (updated with less than 3 months)

For proof of identity: please submit a self-attested copy of any of the following documents of the unitholder whose bank account details need to be edited:

PAN Card

Valid Driving License

Voter ID

Valid Passport

You can apply through a Letter of Undertaking - duly signed by sole or all unit holder/s and submit it at any AMC branch or KFin ISC. You must ensure that your Letter of Undertaking bears a stamp according to the value of the amount invested.

Submit the necessary form mentioning the details of your email ID/mobile no. at any KFin ISC. On including your email ID or Mobile number in your details, you can opt to receive value-added services such as Welcome messages, Statement of Account via email, confirmation of your SIP registration/renewal/rejection via SMS, confirmation of transactions for redemption etc. via SMS or email.

As per Notification No. S.O. 1226(E) and G.S.R. 226(E) dated March 30, 2020 issued by Department of Revenue, Ministry of Finance, Government of India, read with Part I of Chapter IV of Notification dated February 21, 2019 issued by Legislative Department, Ministry of Law and Justice, Government of India on the Finance Act, 2019 and SEBI communication no. SEBI / IMD/DF2/ OW/ P/ 2020/ 11099/1 dated June 29, 2020, stamp duty will be levied on mutual fund transactions w.e.f. July 01, 2020.

Applicable rates shall be as follows:

Stamp duty is applicable for Mutual fund units with effect from July 01, 2020.

Stamp duty will be applicable for Purchases, SIP instalments (including existing SIPs, registered prior to applicable date), Switch-ins, STP switch-ins (including existing STPs registered prior to applicable date), Dividend reinvestment transactions, Dividend Transfer / Sweep transactions (in the target scheme) and other Special Products in similar lines.

The rate applicable for the same as mentioned above would be 0.005%.

Stamp duty would also be applicable on transfer of units including transfer of units from one Demat account to other Demat account, Off market transfers etc.

The rate applicable for such transfers shall be 0.015% which will be charged by Depositories.

Yes. Stamp duty shall be applicable for Physical mode also.

Stamp duty will be calculated @ 0.005% on net investment value by rounding off the value up to two decimal values (i.e. up to the value of Re 0.01, stamp duty will be charged). As per the guidelines, this will be calculated on the inclusive method using the below formula: ((100/100.005)*0.005)/100 leading to the multiplier value of 0.0000499975001249938. Accordingly, for Rs. 1 crore investment a stamp duty of Rs. 499.98 by rounding off to two decimals would be applicable.

Net investment value refers to Gross investment value less transaction charges, or other applicable deductions.

Example: Transaction Amount: Rs. 1,00,00,100

Transaction Charges: 100 (If Applicable)

Stamp Duty: Rs, 500 ((Transaction Amount - Transaction Charges) *0.005/100.005) i.e. ((1,00,00,100 – 100)*0.005/100.005) or ((Transaction Amount – Transaction charges) * Multiplier as calculated above) i.e. ((1,00,00,100 – 100) *0.0000499975001249938)

NAV: 1000

Units: 9,999.50 ({Transaction Amount – Transaction Charges – Stamp Duty}/NAV) i.e. ((1,00,00,100 – 100 – 500)/ 1000)

All the schemes of Mutual fund shall be covered under stamp duty charges.

Higher the investment horizon, lower the impact

No. Stamp duty will not be applicable for redemption, Switch outs, STP switch outs and      Dividend Pay-outs as the stamp duty is attracted only on Units creation.

No. As the stamp duty is already deducted at the time of issuance of units, stamp duty will not be applicable on Transfer of units from Broker account to Investor account.

Yes. Stamp Duty shall be applicable for switching the units in the same scheme (e.g. Growth Plan to Dividend Plan or vice versa). This is applicable on both direct & regular plan

No. As the stamp duty is already deducted at the time of issuance of units, stamp duty will not be applicable on conversion of units from physical mode to demat mode

Stamp duty will be deducted on dividend amount (less applicable TDS if any) and units will be created for the balance amount.

Yes. Stamp Duty shall be applicable for Unclaimed scheme units allotment on account of new unit creation.

Yes. Stamp duty amount shall be displayed separately against each applicable transaction in the Statement of Account (SOA).

As per SEBI circular CIR/IMD/DF/21/2012 dated September 13, 2012, AMFI is required to create a unique identity number of the employee/ relationship manager/ sales person of all ARN (AMFI Registration Number) holders interacting with the investor for the sale of mutual fund products, in addition to the AMFI Registration Number (ARN) of the distributor.

The unique identity number of such an employee is referred to as Employee Unique Identification Number (EUIN). The EUIN is a seven digit unique alpha numeric number, with one alphabet and six numerals, for eg. E123456 allotted to each Sales Person holding a valid NISM certificate and associated with an ARN holder.

EUIN will assist in tackling the problem of mis-selling even if the employee/relationship manager/sales person leave the employment of the ARN holder / Sub broker.

It aims to inculcate a sales responsibility to the employee/relationship manager/sales person and thereby make all salespersons responsible for their actions.

 The EUIN database will be maintained by the AMFI-unit of CAMS.

EUIN is a unique number allotted to the sales persons of all ARN holders. It is also allotted to Individual/Sole Proprietorship ARN holders in their individual capacity as Sales Person.

Individual/Sole Proprietorship : ARN holders have to obtain EUIN from AMFI. They have to intimate AMFI-unit of CAMS in case they employ any Sales Person so that EUIN could be allotted to them.

Individual ARN : (Senior Citizen Category):ARN holders registered under Senior Citizen category who have employees/ relationship managers/ sales persons working under them for selling and marketing Mutual Fund products under their ARN are required to register these employees under their ARN and obtain the Employee Unique Identification Number (EUIN) for them.

Overseas Distributors: As per AMFI circular CIR/ARN/-14/12-13 dated July 13, 2012, EUIN will not be applicable for overseas distributors who comply with the requirements.

Yes. With effect from October 1, 2013 providing EUIN of the concerned sales person in the application form / transaction slips (in addition to entering the ARN code / Sub Broker ARN code/Sub-broker code, as applicable) is mandatory for all transactions, including transactions routed through stock exchanges.

ARN holders have to ensure that the sub broker affixes his/her ARN code and the EUIN of the Sales Person in the columns separately provided in the transaction slips / application forms. This is in addition to the practice of affixing the internal code issued by the main ARN holder

Individual ARN holders who are Sales Persons themselves (either as the main distributor or the sub broker) shall affix the EUIN allotted to them in the transaction slips / application forms.

Channel distributors and on-line distributors are required to provide the EUIN in the    electronic transaction feeds.

EUIN is applicable on transaction such  as purchase, switch, SIP/STP etc.

For transactions as mentioned above EUIN is effective from June 1, 2013, executed through all modes except for the following modes which shall be implemented by October 1, 2013.

Mobile / SMS based transactions.

Transactions received through the Stock Exchange Platform.

ATM based

Call Center originated

No, the EUIN validity is not linked to the main ARN holder’s expiry as the Sales Person may move from one ARN to another.

AMFI-unit of CAMS will track the period for which a Sales Person / EUIN is tagged to a particular ARN holder i.e. both start date and end date of an EUIN’s association with a ARN holder will be recorded and maintained for future reference.

Yes. ARN holders shall notify the AMFI-unit of CAMS about a Sales Person engaged in the distribution of Mutual Funds, joining or exiting the organization quoting the employee’s EUIN immediately.

On receipt of complaint against a Sales Person from an Investor, AMC, ARN holder or the Regulator, the AMFI ARN Committee shall carry out investigations and advice AMFI-unit of CAMS about the continuation or suspension of the EUIN.

The following cases will be considered as an Invalid EUIN:

EUIN not available in the EUIN master provided by the AMFI unit of CAMS.

EUIN beyond the validity period.

EUIN not mentioned and Investor declaration not provided in the application form.

Incorrect EUIN detail in the application form.

Change of EUIN (EUIN moving from one ARN to Another ARN not updated in the database provided by AMFI-unit of CAMS).

EUIN will be matched with the EUIN Master provided by AMFI unit of CAMS. The scenarios are detailed in the table below:

If Main ARN, Sub Broker ARN and EUIN is provided, in this case EUIN will be matched with the Sub Broker ARN only.

If Main ARN and EUIN is provided, but Sub Broker ARN is not provided, in this case EUIN will be matched with the Main ARN only.

No brokerage/commission will be paid to ARN holders for the business acquired by them without registering or entering the EUIN obtained from AMFI.

In case where EUIN along with ARN code / Sub Broker ARN code, as applicable, have been obtained but not provided, the ARN holder is required to remediate the same within 30 days for all transactions submitted post October 1, 2013 as per AMFI Circular dated August 27, 2013 from the date of transaction either by providing the EUIN details or the declaration signed by the investor in separate Form.

In case EUIN is not provided within 30 days, brokerage/commission on the concerned transaction shall be forfeited permanently.

With effect from July 1, 2014, (as per AMFI’s recommendations), the remediation period has been changed to 7 days from the end of the month in which the transaction is submitted. For example, all those transactions which are submitted during July 2014 without EUIN have to be remediated as per the process stated above on or before August 7, 2014.

As per the provisions of SEBI in the circular date 27th August 2013, that EUIN is mandatory for non-advisory transactions (execution only) also, though the advice relating to the scheme or asset class is only incidental. However, in case of any exceptional cases where there is no interaction by the employee/sales person/relationship manager of the distributor/sub broker with respect to the transaction, AMCs shall take the declaration separately signed by the investor.

Please get a declaration signed from the investor within 30 days# which states:

“I/We hereby confirm that the EUIN box has been intentionally left blank by me/us as this transaction is executed without any interaction or advice by the employee/relationship manager/sales person of the above distributor/sub broker or notwithstanding the advice of in-appropriateness, if any, provided by the employee/relationship manager/sales person of the distributor/sub broker.”

For transactions received on or after April 1, 2014, in case the above declaration is not provided within 30 days, brokerage on the transaction shall be forfeited permanently.

If the EUIN is not mapped to the distributor ARN, the relevant commission amount against that transaction is on hold until EUIN details remediated by the distributor.

The EUIN can be changed if received within the stipulated period for remediation (30 days from the date of transaction for transactions submitted post October 1, 2013). The Investor must ensure the EUIN is valid and tagged to the ARN holder that has not expired.

For receiving units in your demat account, you have to submit a duly filled "Application for Allotment of Units in Dematerialized Mode" along with the application form / transaction slip.

To convert units held in SOA mode to Demat mode, you have to submit a duly filled "Application for Allotment of Units in Dematerialized Mode" along with the physical holding account statement given by TRUST Mutual Fund.

For receiving units from Demat to Remat mode, you have to approach your Depository Participant (DP) / broker for stock exchange.

For redeeming units from your demat account, you have to approach your Depository Participant (DP) / broker for stock exchange transactions for redeeming them. You will not be able to redeem these units from any office of TRUST Mutual Fund / KFINTECH.

Yes, you can switch units held in your demat into another scheme.

6) The procedure for change in investor’s profile / bank account details etc. in respect of units held in demat mode (i.e., To whom the investor is required to approach, in case of such requests).