The Association of Mutual Funds in India (AMFI) has asked fund houses not to accept third party payments barring a few exceptions.
In a best practice guidelines circular issued to AMCs on Monday, AMFI said that third-party payments would only be accepted in case of payment by "parents/gand-parents/related persons on behalf of a minor for a value not exceeding Rs 50,000 (each regular purchase or per SIP installment); payment by employer on behalf of employee under systematic investment plans (SIP) through payroll deductions and custodian on behalf of an FII or a client." However, the mutual fund body recommends that in the above mentioned exceptional cases, AMCs should have appropriate controls in place to carry out verification as required under the Prevention of Money Laundering Act (PMLA).
The AMCs should, therefore, determine the identity of the investor and the person making payment, that is, mandatory KYC for investor and the person making the payment; obtain necessary declaration from the investor and the person making the payment. Declaration by the person making the payment should give details of the bank account from which the payment is made and the relationship with the beneficiary.
It has also asked AMCs to verify the source of funds to ensure that funds have come from the drawer's account only. AMFI further elaborates the process for identifying third-party payments. The procedures recommended include asking the investor for details of his pay-in bank account (account from which a subscription payment is made) and his pay-out bank account (account into which redemption /dividend proceeds are to be paid); seeking a certificate from the issuing banker for subscriptions through pre-funded instruments such as pay order, demand draft, banker's cheque, etc.
If the 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.
If payments are received via channel distributors, AMCs should ensure that the settlement model has satisfactory checks and balances against third-party payments.
The guidelines further say that for payments through net banking, AMCs should 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.
AMCs should implement the process for identifying third-party cheques within 90 days of the issuance of the circular or by November 15, 2010.
