Mutual Funds Complete Guide to KYC Folios Redemption and TAT for Investors
Posted By: Blog
Investing in mutual funds is a popular way to grow wealth, but do you really know what happens behind the scenes? From opening an account to redeeming funds, a lot of technical processes occur that every investor should understand. Let’s take a deep dive into these essential aspects, including KYC completion, folio creation, redemption processes, and the critical concept of Turn Around Time (TAT), to make your mutual fund investing journey seamless. Understanding these technical aspects can help you make smarter investment decisions.
Understanding KYC for Mutual Funds
Before you can invest in mutual funds, you need to complete your Know Your Client (KYC) process. This is a mandatory step to ensure your identity and financial details are verified. Here’s what you need to know:
- Name Consistency: Your name must match your bank account, PAN card, and Aadhaar card. Consistency ensures smooth account creation
- Multiple Applicants: You can include up to three applicants in a mutual fund account, but the first applicant is the one liable for income tax and other obligations
- Cheques and Transfers: For investments, cheques must come from the first applicant's account. Only after funds are realized will the units be allocated
1. Folio Creation - The First Step in Your Investment Journey
After submitting your application and cheque (or completing an online transfer), the registrar and transfer agent create a folio for you. Think of a folio as your unique investment identity in the mutual fund ecosystem.
- Folio Details: Your folio will include your PAN number, address, bank details, and other relevant information
- Unit Allotment: Units are allotted only after the mutual fund receives the cleared funds. If your cheque bounces, the transaction will be reversed, and your statement will reflect this
Did You Know? Sometimes, even if the folio is created, a returned cheque will reflect as an investment reversal in your statement.
Penny Drop Validation
Ever noticed a 1 Rupee credit in your bank account when opening a new mutual fund folio? This is called the “penny drop” validation. It is a 1 Rupee transaction to verify your bank account details. It ensures smooth fund transfers during redemption or when updating your account. If you change your bank, a new penny-drop validation will be performed for the updated account.
Check out the video link for a more in-depth understanding
2. Nominations - Safeguarding Your Investments
When investing in mutual funds, it’s crucial to nominate beneficiaries. Here’s how it works:
- Number of Nominees: You can nominate up to three people per application
- Details Required: Provide the nominee’s name, date of birth, and PAN card (if available). For minors, guardian details are mandatory
- Variable Shares: You can allocate percentages to each nominee (e.g., 60% to the first nominee and 40% to the second)
- Flexibility: Nominations can be updated or changed at any time
3. Changing Your Status: Resident to NRI
If you’re moving abroad or returning to India, you’ll need to update your mutual fund account status. Here’s the process:
1. From Resident to NRI
Change Your Bank Account: Convert your savings account to an NRO (Non-Resident Ordinary) account
Update KYC: Submit proof of your new bank account and update your KYC status
Mutual Fund Update: Ensure all mutual fund houses reflect your NRI status
2. From NRI to Resident: Follow the same steps in reverse to update your status back to the resident.
Check out the video link for a more in-depth understanding
4. Turn Around Time (TAT) in Mutual Funds
The Turn Around Time (TAT) defines how quickly your transactions are processed. Given the daily influx of investments and the generation of new Net Asset Values (NAVs), timeliness is key.
Investment TAT
- Cleared Funds: Units are allotted only after funds are cleared
Cut-off Timings
- Equity and hybrid funds: Funds must be credited before 3 p.m
- Liquid funds: Funds must be credited before 1:30 p.m
Redemption TAT
- T+1 for Liquid Funds: Redeem by 3 p.m. on Monday, and funds are credited by Tuesday noon
- T+2 for Equity/Hybrid Funds: Redeem by 3 p.m. on Monday, and funds are credited by Wednesday noon
- Exclusions: National holidays and weekends are not included in TAT calculations
From KYC completion to folio creation, nominations, and TAT, each stage in the mutual fund process is structured to uphold transparency and streamline operations. By understanding these details, you can:
- Strategize your investments effectively
- Prevent delays in redemption processes
- Ensure compliance with regulatory standards
Final Thoughts
Mutual funds are a great way to build wealth, but they involve specific rules and processes. By gaining insight into the behind-the-scenes elements—such as KYC, folios, nominations, and TAT—you can approach your investment journey with greater confidence.
If you have any questions or need help with your mutual fund investments, don’t hesitate to reach out. We're here to assist you in making the most of your money!
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