Who can write out an MF cheque

Those investing in mutual funds need to know the precautions to be taken while writing out cheques. Here is relevant information in this regard as also recent rule changes.

When applying for mutual fund units, fill out cheque details with care. The cheque amount in words and figures should match with the amount in the application form. The investment amount should meet the minimum amount criteria mentioned in the scheme information documents/application

The fund and scheme name should be correctly mentioned. 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; corrections on cheques are not permitted. In line with an RBI notification, the validity of all cheques, drafts, pay orders, banker’s cheques is three months from the date of drawing up the instrument. Investors must ensure that all dividends 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 According to AMFI guidelines, an investment in a mutual fund is not allowed through issuance of a third party cheque. A cheque issued 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 and the names of the holders should have been printed on the face of the cheque. 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 ₹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 on mutual fund websites.

Payments made by pre-funded instruments such as a pay order or banker’s cheque will be accepted if the instrument is accompanied by a certificate from the issuing banker stating the account holder’s name, PAN and the account number that 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 evidencing the debit for the issuance of the instrument or a copy of the acknowledgement from the bank wherein the instructions to debit the bank account are available.

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. The views expressed are general practices in the MF industry and may vary on a case-to-case basis.

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