Mutual funds (MFs) are one of the most preferred investment products by retail investors due to benefits such as diversification, professional management and compounding effect in case of long-term investment. While investing in mutual funds, investors typically focus a lot on fund selection  —  checking past returns, associated risks and performance vs benchmark and peers. However, what is also important — and often ignored — is the operational aspect.

During the MF investing journey,  investors deal with different issues at different stages. In the initial stage, knowledge regarding modes of holding and understanding the plans available might be important while post that, investors must track whether the funds they hold have undergone any changes. After that, they must ensure that the proceeds reach intended beneficiaries without any hassle.

Here, we explain, by way of FAQs, aspects an investor needs to focus on, at different stages of her investment lifecycle in MFs.

A comprehensive guide to the operational aspects of Mutual funds  A comprehensive guide to the operational aspects of Mutual funds  
When you begin…

What are the routes for nvesting in MFs?

There are multiple ways to invest in mutual funds.  If you are not tech-savvy or lack knowledge regarding the investing process,  you can take the help of an intermediary— i.e. a mutual fund distributor who assists with your paper work. These distributors can be both online and offline. Here, you would investg in a regular plan and will be charged extra compared to a direct plan. However, in the direct plan, you will be handling the operational part entirely.

If you want to invest in direct plans of MFs, you can visit AMC websites, platforms such as MFCentral and MFUtility and applications such as Groww and Kuvera. While regular plans have expense ratio of around 2 per cent for actively managed large-cap MF schemes, for instance , for  direct plans it is around 0.7 per cent. Such difference in expense ratio enables direct plans to generate higher return over the long term, due to compounding effect. But do note, expenses shouldn’t be the only factor to consider while investing. 

Which mode of holding to choose?

The next decision is choosing a specific mode of holding for your MF folio. Typically, joint holding and anyone or survivor modes are preferred over single holding since the transmission process is smoother when it comes to death of a unitholder — as the folio is transferred directly in the name of surviving unitholder. . If decisions have to be taken collectively by both account holders, it is better to opt for a jointly held one; if any one of the holders should have the flexibility to operate the account, the anyone or survivor account is recommended. Further, irrespective of the mode of holding, one should provide a nominee for the account. If you don’t want a nominee, you need to provide a declaration to this effect.

Often, investors invest on behalf of their children towards goals such as education and marriage. For this, they can open an account in the name of the minor, who shall be the sole holder of the account and there is no joint account. The guardian will operate the account till the minor turns 18.  

Which plan should you choose?

Typically, while investing in an MF scheme, you need to choose between two popular plans — Growth vs Dividend payout (IDCW payout). While the Growth plan reinvests the profits made by the fund, the IDCW (payout option) distributes the profit at regular intervals to its investors due to which compounding effect is less. Typically, Investors wanting an income stream go for IDCW plan, but for those looking for regular income, tapping the systematic withdrawal plan (SWP) route, instead, can fetch more predictable sums and also be more  tax-efficient. Further, investors need to choose between lumpsum and SIP. For beginners, the SIP route is recommended to create a regular savings habit. Investing regularly through SIP averages the cost as the market moves up and down. Also, one need not worry about timing the investment right when doing SIPs.

As you accumulate

After you successfully start your investments, there may be changes along your investing journey — regarding your understanding of mutual funds and KYC details, among other things.  Here are queries that might arise in investors’ minds at this stage.

How can one consolidate folios?

During your MF investment journey, you might have found that while opting for schemes of the same fund house, you had created new folios each time you made a new investment. This can happen when you invest in schemes of the same fund house through different means.

Too many folios can become unwieldy while making changes in personal details, for instance, bank account number. To avoid this, you can consolidate the folios in multiple ways. One way is to submit the ‘Request For Consolidation of Folios form’ which you can get from the fund house’s website. Alternatively, you can visit websites of RTAs CAMS and Kfintech or use platforms such as MFCentral and MFUtility to do the needful. Do note that only folios held in the same fund- house can be consolidated. Further, for consolidation purpose, both source and target folios need to have same holder names, holding pattern, tax status, bank account details and same nominees.

How to change details in mutual fund folio?

Over the years, KYC details need to get updated, due to reasons such as marriage or relocating to other cities. Hence, to amend email ID, name, marital status, address and residency status, one needs to fill a ‘KYC details change form’, which you can get from RTA or AMC websites. Further, you need to submit ‘Change of Bank Mandate’ form or ‘Multiple Bank Registration’ form in case of change in multiple bank accounts. For these changes, MFCentral and MFUtility will also be of help.

How to have consolidated view of your investments?

When you have multiple ongoing MF investments through various modes across different AMCs, it might be possible that you lose track of them. You can keep tabs via NSDL Consolidated Account Statement (CAS), a soft copy of which you get every month on your e-mail. Further, if you want CAS on a real-time basis, visit the websites of CAMS, MFCentral and MFUtility.

How to track changes and updates in mutual funds?

Post launch, every MF scheme goes through updates. Most important ones, for instance, in type of scheme (open-ended to close-ended, category change), investment objective (growth or income) and terms of issuance are changes in fundamental attributes. Here, you get a 30-day period in which you can exit the fund without facing any exit-load.

If there are material, scheme-related changes other than that of fundamental attributes — such as change in benchmark index, change of fund manager and introduction of additional facilities such as SIP Pause Facility — addenda are put up on AMC’s websites. Further, notices are posted on AMC websites for general updates such as declaration of dividend, hosting of annual reports, half-yearly financials, half-yearly portfolio, and change in base TER.

Investors get notified about all these changes through e-mail and newspapers.

Is regular to direct switch possible?

At some point, when you get tech-savvy to manage your portfolio yourself, you may not need any intermediary for operational support. Then, you might feel like switching from regular to direct to save commissions and earn higher returns. But switching  involves offloading your existing investments under regular plan and buying fresh units in direct plan, which would hence attract capital gains tax. If you decide to switch, you can do the process on your own or direct the fundhouse, RTAs, third-party platforms, and MFUtility and MFCentral to do the same on your behalf. Further, you can do the same through offline mode by filing the form.

In order to switch in a tax-efficient manner, switch those units wherein LTCG is applied and book gains up to ₹1 lakh a year in case of equity funds. Alternatively, start your fresh investments from a point in time through the direct plan route.

At closure

How does redemption work?

As and when you near your goals, you can sell the MF units and use the redemption proceeds to meet the expenses saved for (after paying capital gains tax, if applicable). If you have invested online through AMC, demat account, or other platforms, simply go to the respective  portal and choose to sell some or all units. However, if you want to go through offline route, download a redemption form from CAMS website, and submit it, duly filled, at the nearest CAMS office.

Typically, the cut-off time for redemption is 3:00 p.m. for equity schemes, for example. This means that if you proceed with redemption before that time, the applicable NAV at which you will get redemption proceeds will be considered on the basis of that day, else, NAV of next working day is considered. Further, post selling units, the redemption proceeds shall take two trading days to reach your bank account.

How does transmission of units take place?

The process of transferring MF investments of a deceased investor to a claimant is similar in most respects while there are some key differences in procedure and documentation depending on the type of claimant and holding mode. There are mainly three types of claimants: joint account holder(s), nominee(s) and legal heir(s).

Typically, in case of death of a first unitholder in joint holding mode, MF units shall be transferred to the other surviving holder(s). To claim units, the second holder will have to go through a process and furnish documents, namely transmission request form (Form T2), death certificate of deceased unitholder attested by notary public and gazetted officer, cancelled cheque of new first unitholder with claimant’s name pre-printed, and if PAN card is not provided and KYC is not done, a copy of PAN card and KYC acknowledgement form works. 

Nominee can be a claimant in case of death of a single unitholder or death of all joint holders when unitholders have appointed nominee. Here the documents required are mostly similar to that in case of transmission to other unitholders. Further, for transfers of up to ₹2 lakh, the bank manager must attest the nominee’s signature. If the amount is above ₹2 lakh, the nominee’s signature must be attested by a Notary Public or First Class Judicial Magistrate.

Things typically get changed and transmission process gets more cumbersome in case there is no nominee registered. In such a case, the MF units are transmitted to the legal heir of unitholder as per Will. Apart from what is mentioned earlier, additional documents required here in case of claim amount of less than ₹2 lakh are proof of relationship between the claimant and deceased investor (Driving licence, Aadhaar Card, or a Voter ID Card), bond of indemnity, individual affidavits by each legal heir and No objection certificate (NOC) from other legal heirs. Further, if transfer amount is more than ₹2 lakh, additional documents such as notarised copy of probated Will, succession certificate by court and letter of administration or court decree, in case of Intestate Succession are needed.

A fund house usually completes the transmission of Mutual Fund units to the claimant within 10-30 days of submitting all the required documents. The transmission of units held by the deceased investor to joint holder, nominee, or legal heir does not involve a redemption of units. As a result, there is no immediate tax liability for the transferee of the MF units amid transfer.