Investor Services

1The New Fund Offer (NFO)

A new scheme is first offered through an NFO. Before filing the Scheme Information Document with SEBI, the AMC needs approval from its board and the trustees. An NFO stays open for at least 3 working days and at most 15 days (ELSS is an exception). Units are allotted, or money refunded, within 5 business days of the NFO closing. An open-ended scheme must reopen for ongoing purchases and sales within 5 business days of allotment.

Applying through ASBA in an NFO means the money stays in the investor's bank account (still earning interest) and is debited only when units are allotted, so there is no wait for a refund.

Example Ravi applies ₹50,000 in an NFO through ASBA. The amount is blocked, not debited. It leaves his account only on allotment, and if allotment fails, the block is simply released.

Remember

• SID approved by the AMC board and trustees before filing with SEBI.
• Allotment or refund within 5 business days.
• ASBA: money blocked, debited only on allotment.

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2Direct and regular plans

Every scheme has a direct plan and a regular plan. Both invest in exactly the same portfolio. The direct plan has no distributor and no distributor commission, so its expense ratio is lower and its NAV grows slightly faster. Any investment routed through a distributor goes into the regular plan.

Example A form submitted through a distributor, with "Direct" written in the ARN box, still goes into the regular plan, because the investment was routed through a distributor.

Exam trap Direct and regular plans have different NAVs (direct is higher over time) but the same portfolio.

Remember

• Same portfolio; direct = no commission, lower expenses.

Practise this concept (2 questions)

3Growth, IDCW and bonus

Within each plan there are options:

• Growth: nothing is paid out; gains stay in the NAV.
• IDCW pay-out: IDCW is paid to the investor's bank account.
• IDCW reinvestment: IDCW is used to buy more units at the ex-IDCW NAV.

All options share one portfolio. What differs is the cash flow, the number of units and the tax.

A bonus gives extra units for free, but the NAV falls in proportion, so the total value stays the same.

Example A scheme declares a 1:4 bonus (1 new unit for every 4 held). An investor with 400 units at NAV ₹50 (value ₹20,000) gets 100 bonus units. She now has 500 units, and the NAV falls to ₹40. Value: 500 × ₹40 = ₹20,000, unchanged.

Remember

• Options share one portfolio; cash flows, units and tax differ.
• Bonus: more units, lower NAV, same value.

Practise this concept (5 questions)

4Allotment and account statements

After a purchase, units are allotted at the applicable NAV. Investors receive a Consolidated Account Statement (CAS) by PAN, covering all their mutual fund holdings across fund houses: monthly for any month with a transaction, otherwise every half-year. Units can also be held in demat form.

Example Neha invests in schemes of three fund houses in one month. She gets one consolidated monthly statement covering all of them, matched by her PAN.

Remember

• CAS by PAN across all fund houses; monthly if there was a transaction.

Practise this concept (7 questions)

5Who can invest

• Individuals, alone or jointly (up to 3 holders). For joint holdings, the first holder gets payments and is taxed.
• Minors, through a parent or legal guardian. A minor's folio cannot have joint holders, and the minor's date of birth and proof of age must be given. Payment must come from the minor's account, the parent's or guardian's account, or a joint account of the minor with the parent or guardian.
• NRIs (repatriable or non-repatriable basis), HUFs (through the Karta), companies, trusts and other institutions.
• Qualified Foreign Investors (QFIs) from countries that are FATF members and IOSCO MMoU signatories.

Exam trap A minor's folio cannot have joint holders, and the guardian stops operating it once the minor turns 18.

Example Mr and Mrs Iyer invest jointly, with Mr Iyer as first holder. IDCW is paid to his account and taxed in his hands, and both must complete KYC.

Remember

• Minor folio: single holder, guardian operates until majority.

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6Filling the application form

A complete form needs: the investor's details and PAN (KYC-compliant), bank account details for pay-outs, the scheme, plan and option, the investment amount and payment details, nomination (or opt-out), and FATCA/CRS information. Investors whose country of birth, citizenship, nationality or tax residency is outside India must give extra FATCA/CRS details.

To add more money to an existing scheme or another scheme of the same fund house, an investor just fills a transaction slip quoting the existing folio number.

Example Kiran already holds a folio with a fund house. To invest in its flexi cap fund, he uses a transaction slip with his folio number; he does not repeat KYC or fill a full form.

Remember

• New investors: full form. Existing folio: transaction slip.
• Foreign links → extra FATCA/CRS information.

Practise this concept (9 questions)

7Paying for and redeeming units

Payments in: cheques, net banking, UPI, mandates and similar banking channels. Third-party payments are not accepted, except in limited cases: for example, a grandparent paying up to ₹50,000 per transaction for a minor (with a declaration), an employer paying through payroll deductions, or a custodian paying for an FPI. A payment from a joint bank account is not third-party if the first unitholder is one of the joint account holders.

Cash: eligible small investors may invest up to ₹50,000 per fund house per financial year in cash, but pay-outs are only through banking channels.

Payments out: redemption money goes only to the investor's registered bank account. If a redemption request names an unregistered account, the money goes to the default registered account and the change is not processed. To use a different account, the investor must first register it with proof (such as a cancelled cheque with the name printed).

A One-Time Mandate (OTM) authorises the bank once to accept future purchase debits from that fund house, so the investor does not have to arrange payment each time.

Exam trap A friend cannot pay for an adult's investment. Redemptions never go to an account that has not been registered.

Example Sneha's grandfather wants to invest ₹30,000 for her (she is 10). This third-party payment is allowed with a declaration, because it is for a minor and within ₹50,000. If her uncle wanted to pay for her adult brother, it would be refused.

Remember

• No third-party payments (minor/grandparent, payroll, custodian exceptions).
• Cash: up to ₹50,000 per fund per year; pay-outs only to the bank.
• Redemptions only to registered accounts.

Practise this concept (20 questions)

8Cut-off times and the applicable NAV

The NAV you get depends on when the application reaches the fund's official point of acceptance (its time stamp) and, for purchases, when the money reaches the scheme.

For online transactions, the time is taken from the fund's web server, not the investor's device.

Example A distributor collects a redemption form at 2 pm but submits it at the AMC's office at 3:45 pm. The time stamp is 3:45 pm, so the next business day's NAV applies.

Example On Wednesday at 11 am, with funds available, an investor buys a liquid fund. She gets Tuesday's NAV (the day before receipt).

Remember

• Purchases: NAV of the day the money is available (before cut-off).
• Time stamp at the point of acceptance, not when the distributor collected the form.

Practise this concept (7 questions)

9KYC requirements

Know Your Customer (KYC) is compulsory for everyone investing in mutual funds, whatever the amount: all joint holders, guardians of minors, power of attorney holders and NRIs. KYC needs proof of identity and address, PAN and a photograph, and is recorded with a KYC Registration Agency (KRA) so it can be used across intermediaries. If units are held in demat, the depository participant's KYC is relied on.

For companies and trusts, the Ultimate Beneficial Owner (UBO) must be identified: for a company, anyone owning or entitled to more than 25% of its shares or profits. A company investing also needs a board resolution authorising the investment and naming the authorised signatories. Address changes are updated once with the KRA, which passes them on.

Example Mr Mehta owns 30% of a private company that wants to invest its surplus cash. He is a UBO, so his details are collected, and the company submits a board resolution naming who may sign.

Remember

• KYC for everyone, every amount; done once through a KRA.
• UBO: more than 25% for companies.

Practise this concept (10 questions)

10SIP, SWP, STP, switch and DTP

• SIP (Systematic Investment Plan): a fixed amount invested at regular intervals. Because the same amount buys more units when NAV is low and fewer when it is high, the average cost per unit ends up lower than the average NAV (rupee cost averaging).
• SWP (Systematic Withdrawal Plan): a fixed amount withdrawn regularly. Useful for retirees who want regular income without redeeming everything at once, possibly at a market low.
• STP (Systematic Transfer Plan): money moved regularly from one scheme to another of the same fund house; in effect an SWP from one scheme plus an SIP into another.
• Switch: a redemption from one scheme and a purchase in another, done as one transaction.
• Transfer of IDCW Plan (DTP): IDCW from one scheme is invested in another chosen scheme of the same fund house, in the same folio.

Example ₹1,000 a month for three months at NAVs of ₹10, ₹8 and ₹12 buys 100 + 125 + 83.33 = 308.33 units for ₹3,000. Average cost = ₹3,000 ÷ 308.33 = ₹9.73, lower than the average NAV of ₹10.

Exam trap SIPs lower the average cost because a fixed amount buys more units at low prices, not because units are issued at a discount. Each STP transfer is a redemption for tax and exit-load purposes.

Remember

• SIP: rupee cost averaging. SWP: regular withdrawals. STP = SWP + SIP.
• Switch = redemption + purchase.

Practise this concept (7 questions)

11How systematic plans run

A SIP for a minor runs only until the minor turns 18, even if it was registered for longer, unless the new major confirms it. SIPs can be paused or cancelled by the investor, and an SIP is cancelled automatically if consecutive instalments fail for lack of funds in the bank (for example, three in a row for a monthly SIP), as per the fund's terms.

Example A guardian registers a 10-year SIP for a 14-year-old. The SIP runs only for about 4 years, until the child turns 18.

Remember

• Minor's SIP ends at majority.
• Repeated failed debits → SIP cancelled.

Practise this concept (5 questions)

12Nomination, pledge, demat and transmission

• Nomination: individuals can nominate up to 10 people. A nominee can be an individual (including a minor or an NRI), or a government or local authority, but not a company, firm or the Karta of an HUF in that capacity. A new single-holder investor must either nominate or opt out with a signed declaration. After the investor's death, the nominee holds the units in trust for the legal heirs; she is not the absolute owner.
• An investor who is physically incapacitated but can still contract may empower one adult nominee to operate the folio, specifying how much may be encashed.
• Pledge: units can be pledged to a lender. Pledged units cannot be sold or switched until the lender releases them, and the lender can enforce the pledge. Units still in ELSS lock-in cannot be pledged.
• Demat: units in demat are redeemed through the depository participant, which forwards the request to the AMC or RTA.
• Joint holders cannot be added or removed from a folio later, except that a name is deleted on death.
• Transmission: on death, units pass to the surviving joint holder, nominee or legal heirs, with documents.

Exam trap The nominee is a trustee for the legal heirs, not the owner. A private company cannot be a nominee.

Example Vikram names his wife as nominee. After his death, the units are transmitted to her, but she holds them in trust for all his legal heirs, who can claim their share under his will or succession law.

Remember

• Up to 10 nominees; nominee holds units in trust for legal heirs.
• No pledge of locked-in ELSS units.

Practise this concept (10 questions)

13Changes in investor status

• Minor turns major: on the 18th birthday, the folio is frozen for operation by the guardian. Transactions start again once the change of status to major is completed with the new major's KYC and bank details.
• NRI returns to India: the investor updates his status with banks, the depository participant and AMCs, and NRE/FCNR balances move to resident or RFC accounts.
• Change of Karta of an HUF: the new Karta submits documents to update the folio.

Example Aarav turns 18 on 1 March. From that date his folio is frozen for transactions by his guardian, until he completes his own KYC, gives his bank details and the status is changed to major.

Remember

• Minor turns 18: folio frozen until status changes to major.

Practise this concept (4 questions)

14Turnaround times and unclaimed money

Funds must process requests within set timelines (for example, redemption money is sent within a few working days). Unclaimed redemption and IDCW amounts can be traced using MITRA, a platform built by the RTAs to find inactive and unclaimed folios.

Example An investor finds an old cheque for redemption proceeds from 2015 that was never deposited. He can search for the unclaimed amount on MITRA and claim it from the fund house.

Remember

• MITRA helps trace unclaimed and inactive folios.

Practise this concept (3 questions)

15Voluntary lock-in (debit freeze)

An investor can choose to freeze a folio so that no units can be redeemed or switched out until she unlocks it. It protects against unauthorised redemptions.

Example Worried about phishing, Lata freezes her folios. Even if someone gets her login details, no units can be redeemed until she herself removes the freeze.

Remember

• Debit freeze: no units leave the folio until the investor unlocks it.

Practise this concept (1 question)