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 would be in the form of verification of identity and address, financial status, occupation and other such personal information. An applicant must be KYC compliant while investing with any SEBI registered Mutual Fund.
Individual investors will have to produce their Proof of identity (Photo PAN card copy or PAN card copy) and Proof of Address (any valid documents listed in section B of the KYC Application Form for Individuals).
Non–Individual Investors will have to produce certain documents pertaining to the constitution/registration to fulfill the KYC process. A list of Mandatory Certified documents to be submitted can be found in section C of the KYC application form for Non-Individual Investors.
The Association of Mutual Funds of India (AMFI) has facilitated a centralised platform through CDSL Ventures Limited (“CVL”), a wholly owned subsidiary of Central Depository Services (India) Limited. They will carry out the KYC procedure on behalf of all Mutual Funds. CVL, through its Points of Service (POS) will accept KYC Application Forms, verify documents and provide the KYC Acknowledgement (across the counter on a ‘best effort’ basis). The list of POS will be displayed on the websites of Mutual Funds, CVL and AMFI (www.amfiindia.com and www.cvlindia.com respectively). Once the KYC is duly completed in all regards, the investor needs to produce a copy of the acknowledgement when investing for the first time with Mutual Fund. There is no need to repeat the KYC process individually for each mutual fund.
A KYC Application Form has been designed for Individual and Non-Individual Investors separately. These forms are available on the website of mutual funds, AMFI and Central Depository Services (India) Limited (CVL). You may also approach your distributor for a form. It is important to read the instructions printed on the KYC Application Form while filling up the form.
No. If the investor is not in a position to visit POS personally, the KYC Application Form along with the necessary documents (including originals, if the copies are not attested) can be sent through the distributor or representative, who can arrange to complete the KYC process and obtain the KYC Acknowledgement through any of the POS.
With effect from 01 February 2008, any investor investing Rs. 50,000 and above would be required to complete the KYC process.
Currently, all investors (Individuals or Non-Individuals) who wish to make an investment of Rs. 50,000 or above in a mutual fund scheme will be required to complete the KYC process. This would also apply to new Systematic Investment Plan (SIP) registrations on or after 01 February 2008, if each SIP installment is of a value greater than or equal to Rs. 50,000. Please find a 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, on reaching 18 years of age, 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. For transmission (in case of death of the unit holder): If the deceased is the sole applicant, the claimant should submit his/her KYC Acknowledgement in the request along with the other relevant documents to effect the transmission in his/her favour. For transfer of units; transferee/s should submit his/her/their KYC Acknowledgement in the request along with the other relevant documents to affect the transfer in his/her/their favour.
Investors must attach their KYC Acknowledgement along with the Investment Application Form(s)/Transaction Slip(s) while investing for the first time in the A/c folio in a mutual fund. Applications Forms/ Transaction Slips not accompanied by KYC Acknowledgement are liable to be rejected by the Mutual Fund. If you do not obtain a KYC Acknowledgement, you will not be able to invest Rs. 50,000 or more in a mutual fund.
KYC norms are applicable to all investors. It is in the interest of all Investors to obtain KYC Acknowledgement and submit it to the Mutual Fund to avoid any inconvenience in future.
Investors must attach their KYC Acknowledgement along with the Investment Application Form(s)/Transaction Slip(s) while investing for the first time in a Mutual Fund.
In the event of any KYC Application Form being found deficient for lack of information/insufficiency of mandatory documentation, further investments of Rs. 50,000 or more will not be permitted.
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.
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.
Currently, KYC is done free of cost.
The soft copy of these KYC forms will be made available on the website of all mutual funds, AMFI and Central Depository Services (India) Limited (CVL) (www.amfiindia.com and www.cvlindia.com respectively). You may also approach your distributor for a form. The same duly completed along with the necessary attested documents can be submitted at the 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; a certified true copy of the overseas address and permanent address will also be 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.
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 Details, Signature, etc. as per the present requirements of such Mutual Fund.
You should intimate your change of Name/Address/Status/Signature etc. to any convenient POS. You need to quote your PAN and submit proof (in case of a new address). You should provide for at least 10 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/CVL 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 by you in the KYC Application form will be treated in a confidential manner and used for regulatory purposes if called for.
Yes. If you find an increase/decrease in your income, which would effectively change the income bracket that you have declared in the KYC Application form; you should apply to any convenient POS in the specified form. No proof is needed.
Redemption request is given to the investor service centre while the change of address (if KYC process has been previously completed) has to be given to a POS. The change of address will be effected by CVL and informed to the Mutual Funds. As it will take 10 days for this process to be completed, the redemption transaction accompanied by a change of address request is likely to be processed without effecting the change of address request.
KYC Acknowledgement is a separate form. Time-stamping is not required on the KYC Acknowledgement.
Once the investor is KYC compliant, it will be required to intimate his KYC details to all the Mutual Funds with whom it has investments by quoting the folio numbers. The same will be updated in the records of the Mutual Fund.
Scenario 1: If the MIN was obtained by submitting the PAN, the MIN Acknowledgement can be enclosed along with the Investment Application Form(s)/Transaction Slip(s) while investing for the first time in a Mutual Fund, as the PAN number will be stated on the said acknowledgement.
Scenario 2: If the MIN was obtained without submitting the PAN but with other proof identity documents, the investor needs to carry the PAN card in original and a copy for submission at the POS. For such cases, CVL will send out a communication to the respective investors requesting them to submit the PAN for KYC compliance.
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 deposited with mutual funds through the agents and distributors who provide such services. Now a days, the post offices and banks also distribute the units of mutual funds. However, the investors may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. The only role of banks and post offices is to help in distribution of mutual funds schemes to the investors.
Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions. Investors should not be carried away by commission/gifts given by agents/distributors for investing in a particular scheme. On the other hand they must consider the track record of the mutual fund and should take objective decisions.
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes.
The net asset value (NAV) is the market value of the fund's underlying securities. It is calculated at the end of the trading day. Any open-end fund buy or sell order received on that day is traded based on the net asset value calculated at the end of the day. The NAV per units is such Net Asset Value divided by the number of outstanding units:
NAV = (Market Value of Assets - Liabilities) / Units Outstanding
Open ended funds can issue and redeem units any time during the life of the scheme. Close ended funds cannot issue new units except through a bonus or rights issue. Hence, unit capital of open ended funds can fluctuate daily. Further, new investors to an open ended fund can join the scheme by directly applying to the mutual fund at applicable Net Asset Value-related prices. In the case of close ended schemes, new investors can buy units only from the secondary market.
A mutual fund may receive dividend or interest income from the securities it owns; it is required to pay out this income to its investors. Most open-end funds offer an option to purchase additional shares with the dividends. Dividends are often made monthly or quarterly, though many funds make distributions only yearly.
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 offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions. Agents and distributors may also help in this regard.
An investor must mention clearly his name, address, number of units applied for and such other information as required in the application form. He must give his 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, etc at a later date should be informed to the mutual fund immediately.
An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. An investor, before investing in a scheme, should carefully read the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsor's track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.
Mutual funds are required to dispatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, 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 is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.
According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgement of certificates with the mutual fund.
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 unitholder.
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).
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 unitholder and an advertisement is given in one English daily 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 unitholders 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 form close-ended to open-ended scheme and in case of change in sponsor
There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unitholders. Apart from it, many mutual funds send quarterly newsletters to their investors.
At present, offer documents are required to be revised and updated at least once in two years. 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.
The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. The NAVs of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) http://www.amfiindia.com/ and thus the investors can access NAVs of all mutual funds at one place.
The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format.
The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year.
Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds.
Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, CNX Nifty, etc.
On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.
The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the 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 also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc.
Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes.
Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed
Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs. 10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management, etc. This is explained in an example given below.
Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B (100*99). The investor would get the same return of 10% on his investment in each of the schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower number of units within the amount an investor is willing to invest, should not be the factors for making investment decision. Likewise, if a new equity oriented scheme is being offered at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision making by the investor. Similar is the case with income or debt-oriented schemes.
On the other hand, it is likely that the better managed scheme with higher NAV may give higher returns compared to a scheme which is available at lower NAV but is not managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the investor should give more weightage to the professional management of a scheme instead of lower NAV of any scheme. He may get much higher number of units at lower NAV, but the scheme may not give higher returns if it is not managed efficiently.
As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts.
Investors should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds.
In the offer document of any mutual fund scheme, financial performance including the net worth of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls.
Almost 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 has also published useful literature for the investors.
Investors can log on to the web site of SEBI http://www.sebi.gov.in and go to "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. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given.
There are a number of other web sites which give a lot of information of various schemes of mutual funds including yields over a period of time. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard.
In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details.