CHAPTER 9

INVESTOR SERVICES
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 Learning Objectives

After studying this chapter, you should know about:

 New Fund Offer Process  Financial Transactions in mutual funds through

online and physical mechanism
 NFO price and on-going price for
subscription of mutual fund schemes  Cut-off timing and Time stamping
 Investment Plans and Options  KYC requirements for mutual fund investors
 Allotment of mutual fund units to  Different types of systematic transactions
investors
 Operational aspects of Systematic Transactions
 Content and periodicity of Statement
 Process of Non-Financial Transactions in Mutual
of Account
Funds
 Mutual Fund Investor
 Change in Status of Special Investor Categories
 Application form of mutual funds
 Investor transactions – turnaround times
New Fund Offer

Units in a mutual fund scheme are offered to public investors for

the first time through a NFO. The offer is made through a legal
document called the Offer Document.

 NFO Open Date – This is the date from which investors can
invest in the NFO

 NFO Close Date – This is the date upto which investors can
invest in the NFO
Direct and Regular Plans

 The Direct plan is for investors who wish to invest directly in the
mutual fund without routing the investment through a distributor. The
Plan will have a lower expense ratio since there are no distribution
expenses or commissions involved.

 Under Regular plan, the investor indicates a distributor through

whose services the investment decision was made and executed. The
AMFI Registration Number (ARN) is made available by the investor in
the application form and the mutual fund pays the transaction charges
and commissions to the distributor so identified.
 Dividend Pay-out, Dividend Re-Investment
and Growth Options
 In a dividend payout option, the fund declares a dividend from time to time. Both debt and equity
schemes need to pay a dividend distribution tax (DDT) on the dividend distributed. This tax payment
too reduces the NAV.

 In a dividend re-investment option, as in the case of dividend payout option, NAV declines to the
extent of dividend and dividend distribution tax. The resulting NAV is called ex-dividend NAV.
However, the investor does not receive the dividend in his bank account; the amount is re-invested in
the same scheme and additional units are allotted to the investor.

 In a growth option, dividend is not declared. Therefore, nothing is received in the bank account
(unlike dividend payout option) and there is nothing to re-invest (unlike dividend re-investment
option).
Allotment of Units to the Investor

 NFO

 On-going offer

 In a rights issue

 In a bonus issue
NFO: Since entry load is banned, units in an NFO are sold at the face value
i.e. Rs. 10. So the investment amount divided by Rs.10 would give the
number of units the investor has bought.

Subject to the receipt of the specified minimum subscription amount for

the scheme, full allotment is made to all valid applications received
during the New Fund Offer. The Trustee reserves the right, at their
discretion without assigning any reason thereof, to reject any application.
On-going offer: The price at which units are sold to an investor as
part of ongoing sales in an open-end scheme is the sale price, which
in turn is the applicable NAV (currently entry load is not permitted
by regulation, hence the sales price is equal to the NAV). The
investment amount divided by the sale price would give the number
of units the investor has bought.
In a rights issue, the price at which the units are offered is clear at
the time of investment.

The investment amount divided by the rights price gives the number
of units that the investor has bought. It may however be noted that
rights issues, which are common for shares, are less meaningful for
units of mutual fund schemes.
In a bonus issue, the investor does not pay anything. The fund allots new
units for free. Thus, in a 1:3 bonus issue, the investor is allotted 1 new
unit (free) for every 3 units already held by the investor. Since the net
assets of the scheme remain the same – only the number of units’
increases - the NAV will get reduced proportionately and the value of the
investor’s holding does not change as a result of the bonus issue.
 Account statements for investments

 Monthly Statement of Account: Mutual funds issue the Statement of Account every month if there is
a transaction during the month. It shows for each transaction (sale/re-purchase), the value of the
transaction, the relevant NAV and the number of units transacted. Besides, it also provides the
closing balance of units held in that folio and the value of those units based on the latest NAV.

 Annual Account Statement: The Mutual Funds shall provide the Account Statement to the Unit-
holders who have not transacted during the last six months prior to the date of generation of account
statements. The Account Statement shall reflect the latest closing

 Consolidated Account Statement (CAS): A Consolidated Account Statement for each calendar month
will be sent by post/email on or before 10th of the succeeding month provided there is a financial
transaction in the folio in the previous month.
Eligibility to invest in Mutual Funds

 Types of Individual Investors

 Types of Non-Individual Investors

 Filling the application form for Mutual Funds

Types of Individual Investors

 Resident Individuals

 Minors

 Hindu Undivided Families

 NRI’s

 Foreign Investors
Types of Non-Individual Investors

 Companies/ Corporate Bodies

 Registered societies

 Universities and educational institutions

 Association of persons of body of individuals

 Foreign Portfolio Investors

 Banks and financial Institutions

Filling the application form for Mutual Funds

 Direct Plan and Regular Plan

 Unit holder Information
 Status of the holder and Mode of Holding
 KYC Details
 FATCA and CRS Details
 Bank Details
 Investment Details
 Demat Account Details
 Payment Details
 Unit Holding Option
 Nomination
Financial Transactions with Mutual Funds

 Initial Purchase of Mutual Fund Units

 Additional Purchase

 Repurchase of units

 Switch
Payment Mechanism for Mutual Fund
Purchase

 Online Transactions
 Internet Banking
 Electronic Clearing Services (ECS)
 M-Banking and Cash Payments
 Unified Payment Interface
 Aadhar Enabled Payment System
 National Unified USSD platform
 Cards and E-Wallets
 One-Time Mandate and Application supported by Blocked Amounts (ASBA)
The same payment mechanisms are used while re-purchasing the units.
Time Stamping

The precision in setting cut-off timing makes sense only if there is a fool
proof mechanism of capturing the time at which the sale and re-purchase
applications are received. These points of acceptance have time stamping
machines with tamper-proof seal. Opening the machine for repairs or
maintenance is permitted only by vendors or nominated persons of the
mutual fund. Such opening of the machine has to be properly documented
and reported to the Trustees. For online transactions, the time as per the
web server to which the instruction goes, is used in determining the NAV
for sale/re-purchase transactions.
KYC Requirements for Mutual Fund
Investors

KYC Documents
 PAN Card
 Proof of Address

KYC Registration Agencies

 Centralised KYC Registration Agencies
 KYC through e-KYC service of UIDAI
 KYC through Intermediaries
KYC Process

Once the KYC processes are completed and the details are uploaded
on the KRA’s servers, the KYC process is complete. The investor does
not need any further KYC for dealing in any part of the securities
market.
Foreign Account Tax Compliance Act and
Common Reporting Standards

To comply with the requirements of Foreign Account Tax Compliance Act

(FATCA) and Common Reporting Standards (CRS) provisions, financial
institutions, including mutual funds, are required to undertake due
diligence process to identify foreign reportable accounts and collect such
information as required under the said provisions and report the same to
the US Internal Revenue Service/any other foreign government or to the
Indian Tax Authorities for onward transmission to the concerned foreign
authorities. The application form requires information to be provided if
the citizenship/nationality/place of birth/tax residency are places other
than India for all categories of investors.
Systematic Transfers

 Systematic Investment Plan (SIP)

 Systematic Withdrawal Plan (SWP)

 Systematic Transfer Plan (STP)

 Dividend Transfer Plan (DTP)

 Switch
Operational Aspects of Systematic Transfers

SIP Top-Up Facility: Mutual funds provide an additional facility through an SIP to
enhance the disciplined savings of investors. It is called the SIP Top-Up facility.
Investors have the option to increase the SIP amount at intervals chosen by them. The
increase can be of a fixed amount or a percentage of the existing SIP amount.

Renewal and cancellation of SIP

Registration and cancellation of SIP, STP and Switches

Execution of systematic Transfers

Triggers
Non-Financial Transactions in Mutual Funds

Following are the possible transactions under this category

 Nomination
 Pledge/Lien of units
 Demat Account
 Change in Folio Details
 Change in Personal Information
 Change in Bank Account Details
 Transmission of units
Change in Status of Special Investor
Categories

Following are the possible changes under this category

 Minor turned Major
 NRI to Resident Indian
 Change in Karta of HUF
Questions & Answer

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