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Here are some guidelines to remember if you are writing out cheques towards investments in mutual funds, in view of new rules coming into force soon.
CTS-2010
The Reserve Bank of India (RBI) has advised all banks to issue only cheques that comply with the cheque truncation system (CTS-2010). This is to standardise and enhance security features in cheques.
This standardisation will help clear cheques electronically, without the process of physical clearance.
When a customer deposits a CTS-2010-compliant cheque, the bank will send the image of the cheque to the drawee bank, whose cheque has been issued. Clearance is done based on the image. This move will help banks save on transaction cost and time in clearing cheques.
The deadline for phasing out non-CTS cheques has been extended from April 1, 2013 to end of July. Investors in mutual funds too will have to go by the new system once it comes into play.
Clear and correct info
Any kind of changes or correction on cheques is not permitted without a counter signature. If there is any change in the payee’s name, amount in figures or amount in words, investors will have to write a fresh cheque.
When applying for Mutual Fund Units, care should be taken while filling out the cheque. The cheque amount in words and figures should tally and match with the amount in the application form. The investment amount should be at least for the minimum amount mentioned in the scheme documents.
The Fund and scheme name should be correctly mentioned on the cheque. Care should also be taken to ensure that the scheme option mentioned in the cheques and application form are the same.
In line with an RBI notification, the validity of all cheques, drafts, pay orders, banker’s cheques is three months from the date of instrument.
Investors must ensure that all dividend or redemption payments received through cheques are presented to their banks within three months of the date on the instrument for successful clearance.
Third-party cheques
As per AMFI guidelines, mutual fund investments made through third party cheques will not be processed. 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”.
If the cheque is issued from a joint account, the first named applicant/investor must be one of the joint holders of the bank account from which the instrument is issued.
There are exceptions to this 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 the third party declaration form mentioning the relationship with the First Holder. The form is available at mutual fund Web sites.
Payments made by pre-funded instruments, such as a pay order, banker’s cheque will be accepted if the instrument includes 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.
Alternately, investors may submit a copy of the bank statement showing the debit for the issuance of the instrument or a copy of the acknowledgement from the bank with the instructions to debit the bank account. These should contain the bank account details and the name of the investor.
The account number mentioned in these supporting documents should be the same as one of the registered bank accounts in the folio or mentioned in the application form.
Contributed by CAMS Viveka, an Investor Education Initiative from CAMS. Views expressed are general practices in the MF industry and may vary on a case-to-case basis
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