Section 10 – How You Can Operate Your Mutual Fund Investments

Table of Contents

Investment Subscriptions

Once you have created an account online or filled up the subscription application form for investing in a mutual fund scheme of your choice, you need to submit the application form online or offline as the case may be. The payment for investment can be made online in case of online submission or by cheque for an offline transaction. The units in the selected scheme will be allotted as per defined timeline in line with the cut off timings for subscription depending on the precise time when the application has been submitted and the funds have been realised by the AMC. You will be notified by email /SMS regarding the allotment of units.

Switching

Switching refers to shifting of investment wholly or partially from one scheme to another within the same fund house. For lock in periods switching is not allowed.

Switch in means entering in a scheme and switch out means moving out from a scheme. If an investor request for switching by filling the switch form, the requested units will first be redeemed from the source scheme (Scheme from which moving out) and then units will be purchased in the target scheme (Scheme in which entering).

A request for switch can be made by filling a switch form or writing a letter specifying the switch details. Investor should specify the name of the mutual fund scheme, plan and option from/to where the units are to be switched.

Systematic Transfer Plan (STP)

Under this plan, A fixed amount at a fixed periodicity, as instructed by the investor, is transferred from one scheme (known as source scheme) to another scheme (known as target scheme) of the same mutual fund. Effectively it is a Systematic Withdrawal (SWP) for the source scheme and Systematic Investment (SIP) in target scheme.

 Exit loads and taxes will applyon the first leg of plan i.e., withdrawal leg. Investors can use STP as a good and convenient tool for rebalancing the portfolio or for booking profits in a volatile market.

Redemption

Redemption of units in mutual fund refers to withdrawing from the fund. To initiate the redemption process, the unit holders have to submit a duly signed Redemption Request form to the AMC’s or the Registrar’s designated office or through the authorized online platform. The proceeds from the redemption will be credited to the registered bank account of the unit holder.

The redemption proceeds have to be paid or used for switch in transaction within a defined time frame by the Mutual Fund. This time frame is denoted as T, T+1, T+2etc.T stands for transaction date, thereforeT+1 means Transaction Day plus one business day. It means if a transaction takes place on a Tuesday, settlement must occur by Wednesday. Similarly, T+2 stands for a transaction occurring on a Tuesday will be settled by Thursday.

Payment modes

  • Mutual fund investments can be made through Cheque/Demand draft/NEFT/RTGS. Cheques/DDs need to be payable at par at the locations where the application form and cheque is submitted. Cheque should not be post-dated except for SIP investments.
  • Cash investment is limited to Rs 50,000 (Rs Fifty Thousand) per mutual fund per investor in a financial year.
  • Under Electronic payment modes, Internet banking through RTGS (Real Time Gross Settlement), NEFT (National Electronic Fund Transfer) are the effective way to make payments for mutual fund investments. SWIFT (Society for Worldwide Interbank Financial Telecommunication) is used for payment from abroad. ECS (Electronic clearing service) is the most suitable payment mode for investments like SIP.
  • If mutual fund scheme and investor both are having bank account in the same bank, Standing Instructions commonly known as direct debit can be one of the best payment modes for investment.
  • Mobile banking/ E Wallets/ Unified Payment Interface (UPI)/ Aadhar enabled payment service (AEPS) / One Time Mandate (OTM) has also become popular now a days for making payments.
  • Investor can choose the payment method called ASBA (Application supported by blocked amount) for Mutual fund NFOs. In this process money is transferred from investors account to the mutual fund account only on the allotment of units and till that time investor can earn bank interest on the invested amount from their bank.
  • Third party payments are not accepted except in special cases.

Cut off Timings

There is a uniform prescribed cut off time for submitting the request of purchase, redemption or switch of mutual fund units at the official point of acceptance. This ascertains the NAV to be applied to purchase, redemption or switch. All transaction requests are submitted at the official Points of Acceptance where time stamping is done by a tamper proof stamping machine. In case of online transaction, the time of web server is considered as the time of punching.

It is very important for every investor to know that the units are allotted at the NAV of the business day on which the funds are received into the mutual fund account before applicable cut-off time.

Therefore, they should ensure the availability of funds in the mutual fund account before the cut off time on the day they want the NAV applicable.

The prevailing cut off timing is given in the below shown table:

Type of SchemesTransaction typeCut-off timings
Liquid Funds & Overnight FundsSubscription (including Switch-in from other schemes)1:30 p.m.
Liquid Funds & Overnight FundsRedemption (including Switch-in from other schemes)3:00 p.m.
All other schemes (other than Liquid Funds / Overnight Funds)Subscription (including Switch-in from other schemes)3:00 p.m.
All other schemes (other than Liquid Funds / Overnight Funds)Redemption (including Switch-in from other schemes)3:00 p.m.

Note: Cutoff timings may change from time to time as per SEBI guidelines.

Nomination in Mutual Funds

  • Nomination is a facility provided by the mutual funds to an individual unit holder to nominate a person, who can claim the Units held by the unit holder or the redemption proceeds thereof in the event of death the unit holder.
  • Nomination can be made in favour of a maximum of three nominees. The unit holder must define the percentage holding for each nominee. If the percentage is not specified, it will be presumed to be equal.
  • In case of Single holder, nominee must be specified until the investor has clearly mentioned his intent not to make any one as his nominee. Only individual Investor can make nomination. However, nominees can be individual, minor, NRI, Government and local authorities. A nomination can be changed or cancelled any time by the investor.
  • If one joint holder dies, then the units will continue to be held by the surviving joint holder. If all surviving joint holders die, then the units will be transferred to the nominee’s subject to KYC documentation of nominee, Death certificate of the deceased and an indemnity.



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