Brief on Guidelines for mutual fund investments made through Third party and Cheque from other banks

According to recently issued new AMFI guidelines for mutual fund investments made through third-party cheques will not to be processed by mutual funds with effect from November 15 2010.

What is a third-party cheque?

A cheque issued by and signed by any other person other than the first holder of the investment is a third-party cheque. When a payment is made from a bank account that is not held by the beneficiary investor, that is, the first Holder or the sole Holder, it is referred to as a “Third Party Payment”.

The Exceptions:

• Payment may be made by parents/grand-parents / related persons on behalf of a minor in consideration of natural love and affection or as gift for a value not exceeding Rs 50,000 (each regular purchase or per SIP instalment).
• Payment may be made by employers on behalf of employees under Systematic Investment Plans through payroll deductions will be exempted.
• Payments can be made by custodians on behalf of FIIs or clients.

However, such applications will be considered only if accompanied by:

• A declaration mentioning the relationship with the first holder. (These declarations are expected to be part of the application form issued by mutual funds.
• PAN copy and KYC acknowledgement of the person or entity who is making payment on behalf of the investor. These documents should be attached with the application form.

Dealing With Multiple Bank Accounts:

• If you provide a cheque from a different bank account, the cheque lead should have your name printed therein. For instance, suppose you mention SBI as your bank account. Now if you are issuing an HDFC Bank cheque which has your name printed on the cheque, it’s fine.
• If the cheque leaf does not have the name printed, investors should submit a copy of the bank statement, attested by the bank manager as evidence for holding the account. Else, investors should first register multiple bank accounts in each folio, with the mutual fund. This will ensure that your subscription will not get rejected under the ground of third party cheque.

If you are paying for investment through demand draft

You can issue a demand draft. Such applications will be accepted if the draft is accompanied with a certificate from the issuing banker stating the account holder’s name and the account number which has been debited for issue of the instrument. The account holder’s name mentioned in the certificate should be that of the first holder. If the said certificate from the issuing banker is not attached, the referred application will be treated as ‘Not In Good Order’ (NIGO) and will not be processed.

Frequently Asked Question and Answers:-

Q. What is a third-party cheque?

A. A cheque issued by and signed by any other person other than the first holder of the investment is a third-party cheque. When a payment is made from a bank account that is not held by the beneficiary investor, that is, the first Holder or the sole Holder, it is referred to as a “Third Party Payment”.

Q. I wish to invest in my minor child’s name. He doesn’t have a Bank account. Can I issue my cheque for such an investment? Are there any exceptions to this rule?

A. There are exceptions to the rule, as mentioned below:

Parents: Payment may be made by parents/grandparents/related persons on behalf of a minor for a value not exceeding Rs 50,000 (each regular purchase or per SIP instalment)

Employers: Payment may be made by employers on behalf of employees under Systematic Investment Plans through payroll deductions.

Custodians: Payments made by custodians on behalf of FIIs or clients.

Such applications should be accompanied by PAN and KYC Acknowledgement of the person or entity making the payment on behalf of the investor and a declaration mentioning the relationship with the first holder.

These declarations are expected to be part of the application forms issued by mutual funds. Investors may contact the mutual funds for necessary guidance.

Q. Can I provide a cheque leaf through another bank account which belongs to me, but different from the one mentioned in the Bank Mandate column of the application?

A. Yes. Investors may provide a cheque from a bank account different from the one mentioned in the bank mandate column which belongs to them. However, the investor’s name should be printed on the cheque leaf. If the cheque leaf does not have the name printed, investors should submit a copy of the bank statement, attested by the bank manager as evidence of holding the account.

Q. What if the Bank Account from which payment is made is jointly held?

A. In this case, the Beneficiary Investor, that is the first / sole holder must be one of the joint account. holders

Q.  Can I make the payment through a demand draft / pay order / banker’s cheque?

A. Such applications will be accepted if the instrument is accompanied with a certificate from the issuing banker stating the account holder’s name and the account number which has been debited for issue of the instrument. The account holder’s name mentioned in the certificate should be that of the first holder. If the said certificate from the issuing banker is not attached, the application will not be processed.