FAQ’s on Third-Party Payments

1. When payment is made through instruments issued from an account other than that of the beneficiary investor, the same is referred to as Third-Party payment.
   
2. It is clarified that in case of payments from a joint bank account, the first holder of the mutual fund folio has to be one of the joint holders of the bank account from which payment is made.

No.

15th Nov’2010. AMC / Karvy will reject subscription transactions in case it is established that the source account is from third party.

1. Fraud risk (using one investor’s cheque to fund a different investor’s account)
   
   
2. Non-Adherence to PMLA requirements

1. Payment 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 installment)
   
2. Payment by Employer on behalf of employee under Systematic Investment Plans through Payroll deductions.
   
3. Custodian on behalf of an FII or a client.

1. Determining the identity of the Investor and the person making payment i.e. mandatory Know Your Clients (KYC) for Investor and the person making the payment.
   
   For example :
   
   In case the grand father invests in favor of his grand son (who is a minor), he needs to be KYC compliant (in case of investment of more than Rs 50,000/- till 31st Dec’2010 or irrespective of amount w.e.f. 01st Jan’2010
   
   
2. Obtaining declaration from the person making the payment. This declaration should specify the Bank account from which the subscription money is paid and this said account should tally with the account no mentioned in the application form. The person making payment should also specify the relationship with the beneficiary i.e. minor or employee (in case the payment is made by the Employer (pl refer serial no 5-b)
   
   
3. Verifying the source of funds to ensure that funds have come from the drawer’s account only. AMC / Karvy to ensure that the account no mentioned in the application form tallies with the one mentioned in the Cheque / NEFT / RTGS request letter.

As a best practice, to avoid fraud, it is strongly recommended that mutual funds should educate investors to make the payment instrument (cheque, demand draft, pay order, etc) favouring "XYZ Scheme A/c First Investor name" or "XYZ Scheme A/c Permanent Account Number" or "XYZ Scheme A/c Folio number".

1. An investor at the time of his/her purchase must provide the details of his pay-in bank account (i.e. account from which a subscription payment is made) and his pay-out bank account (i.e. account into which redemption / dividend proceeds are to be paid). AMCs and R&TAs already have a process of capturing an investor’s bank details mandatorily. These details are used for pay-out. It is recommended that the same details also be used for verifying pay-in (i.e. payment of the subscription money). This can leverage on existing processes which verify such bank accounts using a cancelled cheque leaf, bank statement, etc. In case an investor has multiple accounts, he should be encouraged to register them with the AMC. Pay-in from such registered single or multiple accounts can be treated as 1st party payments.
   
   
2. If the subscription is settled with pre-funded instruments such as Pay Order, Demand Draft, Banker’s cheque, etc, following needs to be submitted :
   
   
   1. Certificate from the issuing Bank stating the name and account no which has been debited for issue of the instrument.
      
   2. Certificate from the Issuing banker must accompany the purchase application.
      
   3. The name and account number should tally with the one mentioned in the application form.
      
   4. AMC / Karvy reserves right to reject such application(s) in case of any ambiguity or mismatch.
      
   5. In case of exceptions, the above documents needs to be submitted along with the one mentioned in serial No 6.
   
   Pre instrument declaration format (DD, Payorder, Bankers Cheque)
   
   " This is to certify that a sum of Rs ____________ has been debited from acount No ___________________________, account type (SB/Current/NRE/NRO/FCNR/Others)___________ of Mr./Mrs./Ms./M/s__________________________________ maintained in Bank _______________________________ having its Branch ________________________________.A pre instrument (DD, Pay Order, Banker's Cheque) ______________ has been made vide Instrument No _______________________ dated ______________for Rs ___________ from the above account. ______________________ (Authorized Signatory) "
   
   
3. pre-funded instrument issued by the Bank against Cash shall not be accepted for investments of Rs.50,000/- or more. This also should be accompanied by a certificate from the banker giving name, address and PAN (if available) of the person who has requested for the demand draft. The AMC/R&TA shall check that the name as per the letter matches with the first named unit holder.

1. If payment is made by RTGS, NEFT, ECS, bank transfer, etc.,a copy of the instruction to the bank stating the account number debited must accompany the purchase application. The AMC/R&TA shall check that the account number mentioned on the transfer Instruction copy is a registered pay-in account or belonging to the first named unit holder.
   
   
2. If aggregated payments are received via Channel distributors, AMCs shall ensure that the settlement model has satisfactory checks and balances against 3rd party payments.
   
   
3. For payments through net banking , AMCs shall endeavour to obtain the details of the bank account debited from the payment gateway service provider and match the same with the registered pay-in accounts. In case it is found that the payment is not made from a registered bank account or from an account not belonging to the first named unit holder, the AMC/R&TA shall reject the transaction with due intimation.