Recently AMFI (Association of Mutual Funds in India) has issued "Best Practice Guidelines Circular No.16/2010-11" on risk mitigation process against Third-Party Cheques in mutual fund subscriptions.
To eradicate frauds happening in mutual fund investments, AMFI Working group has suggested the following implementation process.
Third-Party Cheque by definition:
a) When payment is made through instruments issued from an account other than that of the beneficiary investor, the same is referred to as Third-Party payment.
b) It is clarified that in case of payments from a joint bank account, the first holder of the mutual fund folio has to be one of the joint holders of the bank account from which payment is made.If the name of the first holder is not pre-printed on the cheque, investors should submit any one of the following documents to establish that the payment is made from the bank account of the first unit holder:Bank Pass Book copy,Bank Statement copy, or Letter from bank.
Exceptional case
Investors can make third party payment on an exceptional case as Parents/Grand-Parents/related persons on behalf of a minor in consideration of natural love and affection or as gift for a value not exceeding Rs.50,000/- (each regular purchase or per SIP installment)
Mutual Fund Companies /AMCs will accept subscriptions with Third-Party payments for the above exceptional case by determining the identity of the Investor and the person making payment i.e. mandatory KYC for Investor and the person making the payment.
Along with the declaration from Investor and the person making the payment, the third party cheque issuer has to give details of the bank account from which the payment is made and the relationship with the beneficiary. The source of fund will also be verified.
As a best practice, to avoid fraud, it is strongly recommended investors make the payment instrument (cheque, demand draft, pay order, etc) favouring “XYZ Scheme A/c First Investor name” or “XYZ Scheme A/c Permanent Account Number” or “XYZ Scheme A/c Folio number”.
Following come under Third Party payments:
1. Investors normally provides his pay-out bank account (i.e. account into which redemption / dividend proceeds are to be paid), but from now onwards pay-in bank account (i.e. account from which a subscription payment is made)has also to be provided.Investors will have to register multiple pay-in bank accounts with AMCs so that verification process becomes smoother.
2.If investment is done through Pay Order, Demand Draft, Banker’s cheque, etc., a Certificate from the Issuing banker must accompany the purchase application, stating the Account holder’s name and the Account number which has been debited for issue of the instrument.
3.A pre-funded instrument issued by the Bank against Cash shall not be accepted for investments of Rs.50,000/- or more. This also should be accompanied by a certificate from the banker giving name, address and PAN (if available) of the person who has requested for the demand draft.
4.If payment is made by RTGS, NEFT, ECS, bank transfer, etc., a copy of the instruction to the bank stating the account number debited must accompany the purchase application.
5.For payments through net banking, first unit holder's name should match with with the registered pay-in accounts.
1. Investors normally provides his pay-out bank account (i.e. account into which redemption / dividend proceeds are to be paid), but from now onwards pay-in bank account (i.e. account from which a subscription payment is made)has also to be provided.Investors will have to register multiple pay-in bank accounts with AMCs so that verification process becomes smoother.
2.If investment is done through Pay Order, Demand Draft, Banker’s cheque, etc., a Certificate from the Issuing banker must accompany the purchase application, stating the Account holder’s name and the Account number which has been debited for issue of the instrument.
3.A pre-funded instrument issued by the Bank against Cash shall not be accepted for investments of Rs.50,000/- or more. This also should be accompanied by a certificate from the banker giving name, address and PAN (if available) of the person who has requested for the demand draft.
4.If payment is made by RTGS, NEFT, ECS, bank transfer, etc., a copy of the instruction to the bank stating the account number debited must accompany the purchase application.
5.For payments through net banking, first unit holder's name should match with with the registered pay-in accounts.
Association of Mutual Funds in India (AMFI) has given a deadline of November 15, 2010 for doing away with third party payments.
Reference: http://www.dspblackrock.com/ and http://www.amfiindia.com/spages/ARNKYCNorms.pdf
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