Investor services

Most of a distributor's week is spent on service: a KYC that is on hold, a minor turning 18, a SIP mandate that bounced, a nominee to be added. The exam tests the rules behind these tasks, and the arithmetic of systematic plans. Get the eligibility rules and the timelines straight and this chapter is comfortable.

KYC: the entry ticket

No investment is accepted without Know Your Customer compliance under the PMLA framework. KYC is done once, through a KYC Registration Agency (KRA) such as CVL or CAMS KRA, and the record is shared with the Central KYC Records Registry (CKYCR), so that an investor with a valid KYC can invest across fund houses. The requirements: a PAN (mandatory for every holder including joint holders and guardians, with a limited exemption for investments up to ₹50,000 a year per fund house using other identity proof), an officially valid document for identity and address (Aadhaar, passport, voter ID, driving licence, NREGA card, or NPR letter), a photograph, and in-person verification, which can be done through video. Aadhaar-based e-KYC and video KYC are accepted. The KRA validates PAN and Aadhaar against the issuing databases; a KYC status of "validated" allows investment anywhere, "registered" allows it with some checks, and "on hold" blocks transactions until the deficiency is fixed.

Every investor must also declare FATCA and CRS status (tax residency outside India), and disclose the ultimate beneficial owner for non-individual accounts. KYC must be updated when details change, and periodic re-KYC may be required for higher-risk categories.

Who can invest, and how units are held

Eligible investors include resident individuals, minors through a guardian, Hindu undivided families, non-resident Indians and persons of Indian origin (on a repatriable basis through an NRE account or non-repatriable through an NRO account, under FEMA), companies, partnership firms, LLPs, trusts, societies, banks, financial institutions, foreign portfolio investors, and other mutual funds. Foreign nationals who are not NRIs or OCIs cannot invest directly. Some AMCs restrict or require additional declarations from NRIs resident in the United States or Canada because of those countries' securities laws.

Units are held in a folio, the account number with a fund house. A folio can have up to three holders. The mode of holding is either joint (all holders must sign every request) or anyone or survivor (any holder can transact). Tax and IDCW statements go to the first holder. A minor can be the sole holder of a folio with a parent or court-appointed guardian operating it; a minor's folio cannot have joint holders, and payments must come from the minor's own account or the guardian's account. When the minor turns 18 the folio is frozen for transactions until the now-adult holder completes KYC and submits a change-of-status request with signature and bank details. Units can also be held in demat form, transacted through a stock broker, with the depository statement serving as the account statement.

Nomination is available on every folio for individuals. Under SEBI's current framework an investor can name up to the permitted number of nominees (now 10), with percentage allocation, and must either nominate or sign an opt-out declaration. Nominees receive the units on the holder's death through transmission, which requires the death certificate, KYC of the claimant and the prescribed forms; without a nominee, legal heirs provide succession documents. Nomination is not available where the holder is a minor, a power-of-attorney holder, or a non-individual.

Transactions and the systematic plans

Financial transactions are purchase (fresh or additional), redemption (full or partial, by amount or by units), and switch (between schemes or plans of the same fund house). They can be submitted on paper at official points of acceptance, or electronically through the AMC's website or app, the RTA portals, MF Utilities, stock exchange platforms, and distributor platforms. Payment must come from the investor's own bank account; third-party payments are not accepted, with limited exceptions such as a parent or grandparent gifting up to ₹50,000 to a minor, an employer paying for an employee through payroll, or a custodian paying for an FPI.

• SIP (systematic investment plan): a fixed amount invested on a chosen date at regular intervals, usually monthly, with a bank mandate through NACH or a one-time mandate. SIPs can be perpetual, stepped up, paused or cancelled, and the first instalment can be paid with the registration. Each instalment is a separate purchase at that day's applicable NAV, which produces rupee cost averaging: more units when NAV is low, fewer when it is high.
• STP (systematic transfer plan): a fixed amount or units moved at intervals from one scheme to another within the fund house, typically from a liquid fund into an equity fund. Each transfer is a redemption from the source and a purchase in the target, with the associated tax and exit load consequences.
• SWP (systematic withdrawal plan): a fixed amount or units redeemed at intervals, used for regular income in retirement. Each withdrawal is a redemption with capital gains, which is usually more tax-efficient than IDCW.
• Triggers: instructions that execute automatically when a condition is met, such as a NAV level or a date.

The average cost is lower than the average NAV because the fixed rupee amount automatically bought more units at ₹40. That is rupee cost averaging; it does not guarantee a profit, but it removes the timing decision.

Statements, timelines and changes

For every financial transaction the investor receives an account statement, now sent by email or SMS within 5 working days. A consolidated account statement (CAS) across all fund houses, and across demat holdings where the investor has a demat account, is sent monthly if there was a transaction, and half-yearly otherwise; the half-yearly CAS also shows the total expense ratio and the commission paid to the distributor in rupees. SEBI's service timelines: units allotted and account statement within 5 business days of an NFO; redemption proceeds within 3 working days; IDCW within 7 working days; delay beyond these attracts 15% a year interest payable by the AMC.

Non-financial transactions include change of address (done at the KRA, which updates all fund houses), change of bank mandate (with supporting proof such as a cancelled cheque, and a cooling period before redemption to the new account), registration of up to five bank accounts with one as default, change of nominee, change of distributor (no NOC required) or shift to direct, consolidation of folios, and updating email, mobile and FATCA details. Redemption proceeds go only to a registered bank account of the first holder, which is the main safeguard against fraud. Investors should be told to keep the email and mobile on the folio current, because CAS, OTPs and transaction confirmations all depend on them.