INVESTORS IN MUTUAL FUNDS

INVESTORS IN MUTUAL FUNDS (Part 1)

Types of Investors: There are two broad categories of investors in a mutual fund: individual investors and institutional investors.
Individual Investors: These investors invest for their personal benefit or benefit of their family. Types of individual investors include:
- Resident Indian adult individuals
- Minors
- Hindu Undivided Family (HUF)
- Non Resident Indian (NRI)/ Person of Indian Origin (PIO) resident abroad
- Foreign Investors
Institutional Investors: These include:
- Private and Public Companies
- Partnership Firms
- Association of Persons (AoP)
- Societies and Trusts
- Banks and Financial Institutions (FIs)
- Foreign Portfolio Investors (FPIs)
- Overseas Corporate Bodies (OCBs)
Investor Information and Documentations: Individual investors are required to provide name, signature, joint holders information, and address for correspondence.
Special Cases:
- Minors: Require date of birth and supporting documents. Guardians must provide all details and undergo KYC process.
- NRI Investors: Must invest from an NRE or NRO bank account and provide passport and overseas address proof.
- HUF: Requires PAN card, HUF deed, and cheque from bank account in name of HUF.
- Corporate: Requires copy of Memorandum and Articles of Association, board resolution, list of signatories, and KYC documents for authorized signatories.
Know Your Customer (KYC) Norms:
- Proof of Identity: PAN card is mandatory for all applicants except those exempt. Alternate photo identity can be used for investments up to Rs. 50,000 per year.
- Proof of Address: Officially valid documents such as passport, driving license, and others are accepted.
- KYC Exemptions: Certain investments are exempt from PAN requirement, such as micro-SIPs and small lumpsum investments.

INVESTORS IN MUTUAL FUNDS (Part 2)

Proof of Identity and Address: The following documents are accepted as proof of identity and address:
- Aadhaar number
- Voter's Identity Card issued by Election Commission of India
- Job card issued by NREGA duly signed by an officer of the State Government
- Letter issued by the National Population Register containing details of name and address
- Any other document as notified by the Central Government in consultation with the Regulator
Simplified Measures for Verifying Identity: The following documents are also deemed to be officially valid documents for verifying the identity of clients:
- Identity card/document with applicant's photo, issued by the Central/State Government Departments, Statutory/Regulatory Authorities, Public Sector Undertakings, Scheduled Commercial Banks, and Public Financial Institutions
- Letter issued by a gazetted officer, with a duly attested photograph of the person
Proof of Address: If the officially valid document furnished by the client does not contain an updated address, the following documents are accepted as proof of address:
- Utility bill which is not more than two months old of any service provider (electricity, telephone, post-paid mobile phone, piped gas, water bill)
- Property or municipal tax receipt
- Pension or family pension payment orders (PPOs) issued to retired employees by Government Departments or Public Sector Undertakings, if they contain the address
- Letter of allotment of accommodation from employer issued by state or central government departments, statutory or regulatory bodies, public sector undertakings, scheduled commercial banks, financial institutions, and listed companies, and leave and licence agreements with such employers allotting official accommodation
Documentation Requirements: Copies of documents (proof of identity and proof of address) produced have to be self-attested, and originals have to be provided for verification purposes
KYC Procedure: SEBI has mandated a uniform KYC procedure for mutual funds, brokers, depository participants, portfolio managers, and venture capital funds
KYC Form: The KYC form is to be completed in two parts, with personal information and proof of address and identity provided along with self-attested supporting documents
KYC Registration Agency (KRA): The KRA maintains the information and makes it available to intermediaries, and SEBI has mandated that KRAs share data and information with other KRAs through an inter-operability process
eKYC: eKYC is a paper-less Aadhaar-based process for fulfilling KYC requirements to start investing in Mutual Funds (MFs), and SEBI has allowed Aadhaar-based KYC to be used for MF investments
Digital KYC for Persons with Disabilities: RTAs must ensure that the process of digital KYC is accessible to persons with disabilities, and eKYC is available for persons with disabilities
Use of Technology: SEBI has allowed the use of technology to facilitate online KYC, including eSign services and online submission of Officially Valid Documents (OVDs)
Central KYC Registry (CKYCR): The Central Registry of Securitisation and Asset Reconstruction and Security Interest of India (CERSAI) has been authorized to act as and perform the functions of the CKYCR under the PML Rules 2005.

INVESTORS IN MUTUAL FUNDS (Part 3)

CKYC (Central Know Your Customer): To get CKYC done, one may approach a financial intermediary regulated by RBI, SEBI, IRDAI, or PFRDA like a bank, a NBFC, a stock broker, AMC, a distributor, or an Insurance company.
KYC Template: The KYC template finalized by CERSAI has to be used by the registered intermediaries for opening accounts for individuals.
CKYCR (Central KYC Records Registry): The registered intermediaries shall upload the KYC data with CKYCR in respect of all individual accounts opened on or after August 1, 2016, where KYC is required to be carried out as per the circulars issued by SEBI from time to time.

Key Concepts

DigiLocker: A digital public infrastructure that can be used for storage of documents such as PAN Card, driving license, account holding statement of mutual funds, and consolidated account statements issued by depositories.
Power of Attorney (PoA): A facility that allows individual investors to empower someone they trust to do transactions on their behalf.
Nomination: A facility that allows mutual fund investors to nominate someone to receive the investment proceeds in the event of their death.
FATCA and CRS Compliance: Mutual fund investors whose country of birth/citizenship/nationality/tax residency is other than India are required to furnish additional information under Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS).
Investor Charter: A document that details out the services provided to investors, rights of investors, various activities of MFs/RTAs with timelines, and the Grievance Redressal Mechanism.

Investor Rights and Responsibilities

Rights of Investors: Include the right to receive information, timely receipt of statements/reports, timely disclosure of daily Net Asset Values (NAV), and timely redressal of grievances.
Responsibilities of Investors: Include reading scheme-related documents, providing and keeping updated KYC details, checking account statements for discrepancy, and investing through registered and regulated entities.

Other Important Concepts

Centralised Mechanism for Reporting the Demise of an Investor: A mechanism mandated by SEBI for reporting the demise of an investor through KRAs.
KRAs (KYC Registration Agencies): Intermediaries that are required to obtain the death certificate and PAN of the deceased and verify the same upon notification of the death of an investor.

Investors in Mutual Funds

Investor Responsibilities: As specified under the Investor Charter, responsibilities of investors in mutual funds include:
- To check Account Statement for discrepancy, if any, and promptly bring any such discrepancies to the notice of the Asset Management Company.
- To consider availing facility to nominate in respect of investments made in Mutual Funds.
- To invest by issuing payments in the name of the Mutual Fund/Scheme only and not in the name of any other entity.
Unclaimed Dividends and Redemption: Unclaimed dividends and redemption amounts are transferred to the SEBI Investor Education and Protection Fund.
DigiLocker: In the context of mutual funds, DigiLocker is used for digital storage and retrieval of investor documents.
KYC Documents: Officially valid documents for KYC purposes include:
- Aadhaar card
- Passport
- Voter's Identity Card
- Note: An electricity bill older than 3 months is not a valid document for KYC purposes.
Composite PAN-Exempt Limit: The composite PAN-exempt limit for investments by a small investor in micro-SIPs and lump sum investments in a financial year is Rs. 50,000.