In order to enhance compliance with Know Your Customer (KYC) norms under the Prevention of Money Laundering Act, 2002 (PMLA) and to mitigate the risks associated with acceptance of third party payment instruments (cheques, demand drafts, pay orders etc.), Association of Mutual Funds in India (AMFI) issued best practice guidelines on Risk mitigation process against third party cheques in mutual fund subscriptions. In line with these recommendations, Mutual Fund Houses shall not accept applications for subscriptions with third party payment instruments with effect from November 15, 2010.
This will not be applicable to the following exceptional cases:
1. Payment by Parents/Grand-Parents/related persons for investment made on behalf of a minor in consideration of natural love and affection or as gift for a value not exceeding 50,000/- (each regular purchase or per SIP installment).
2. Payment by Employer on behalf of employee under Systematic Investment Plans (SIPs) through Payroll deductions.
3. Custodian on behalf of a Foreign Institutional Investor (FII) or a client.
The above mentioned exception cases will be processed after carrying out necessary checks and verification of documents attached along with the purchase transaction slip/application form, as stated below:
a) Determining the identity of the investor and the person making payment i.e. mandatory Know Your Client (KYC) for Investor and the person making the payment.
b) Obtaining necessary declaration from the investor/unitholder and the person making the payment. Declaration by the person making the payment should give details of the bank account from which the payment is made and the relationship with the beneficiary.
c) Verifying the source of funds to ensure that funds have come from the drawer’s account only.
Please note that these provisions will apply to all SIPs registered on or after November 15, 2010. Installments of SIPs registered before November 15, 2010 will not be affected.
What will constitute as Third-Party instrument?
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.
However if a payment is received from a joint bank account then the first holder of the mutual fund folio has to mandatorily be one of the joint holders in the bank account from which payment is made. If this criterion is fulfilled, then this is not construed to be a third party payment.
In order to prevent frauds and misuse of payment instruments, investors must make the payment instrument favouring either of the following:
– “XYZ Scheme A/c Permanent Account Number of First Investor”. For example “ICICI Prudential Focused Bluechip Equity Fund A/c FGHCIE1234A”
– “XYZ Scheme A/c First Investor Name”. For example “ICICI Prudential Focused Bluechip Equity Fund A/c Sameer Shah”
For any queries or clarifications in this regard, please seek help from your financial advisor on the same.