Mutual funds (MF) have become one of the most popular investment products among retail investors due to their advantages such as diversification, professional management, and the compound interest effect of long-term investment. When investing in mutual funds, investors often pay close attention to fund selection—examining past returns, associated risks, and performance compared to benchmarks and peers. However, equally important but often overlooked is the operational aspect.
In the MF investment process, investors will deal with different problems at different stages. In the initial stage, knowledge about holding patterns and understanding of the schemes available may be important, while after that, investors have to keep track of any changes in the funds they hold. They must then ensure that the proceeds reach the intended beneficiaries.
Here, through FAQs, we explain the aspects that investors need to pay attention to at different stages of the MF investment life cycle.
When you start…
What are the investment channels for MF?
There are many ways to invest in mutual funds. If you are not tech-savvy or lack knowledge about the investment process, you can seek help from an intermediary, a mutual fund distributor who assists you in completing the paperwork. These dealers can be online or offline. Here, you will invest in regular plans and you will have to pay additional charges compared to direct plans. However, in the direct plan, you will handle the operational part entirely.
If you want to invest in MF’s direct plans, you can visit the AMC website, platforms like MFCentral and MFUtility and apps like Groww and Kuvera. For example, for actively managed large-cap MF plans, the expense ratio for regular plans is about 2%, while for direct plans, the expense ratio is about 0.7%. This difference in expense ratios allows direct plans to generate higher returns over the long term due to the compounding effect. But please note that fees should not be the only factor to consider when investing.
Which holding method to choose?
The next decision is to choose a specific holding method for your MF folio. Typically, joint holdings and anyone or survivor mode are preferred over single holdings as the transfer process is smoother when the unit holder dies – as the folio will be transferred directly to the surviving unit holder Transfer in name. . If a decision must be made jointly by two account holders, it is best to choose a jointly held account; if either holder requires flexibility in operating the account, it is recommended to use an anyone or survivor account. Additionally, an attorney should be provided for the account regardless of how it is held. If you do not want a nominee, you will need to provide a statement.
Typically, investors invest on behalf of their children for goals such as education and marriage. For this purpose, they can open an account in the name of a minor, who should be the sole holder of the account and there should be no joint accounts. The guardian will be responsible for managing the account until the minor reaches the age of 18.
Which plan should you choose?
Usually, while investing in MF schemes, you need to choose between two popular schemes – growth plan vs. dividend payout (IDCW payout). Growth plans reinvest the profits earned by the fund, while IDCW (payout option) distributes profits to investors at regular intervals, so there is less compounding effect. Typically, investors who want an income stream opt for the IDCW scheme, but for those looking for a regular income, availing the Systematic Withdrawal Plan (SWP) route allows for a more predictable amount that is also more tax-friendly efficiency. Furthermore, investors need to choose between lump sum investment and SIP. For beginners, it is recommended to use SIP routing and develop the habit of regular savings. Regular investments through SIP can cost average as the market fluctuates. Furthermore, when doing a SIP, there is no need to worry about whether the timing of investment is right.
when you accumulate
Once you successfully start investing, your investing journey may change – including your understanding of mutual funds and KYC details. The following are questions that investors may have at this stage.
How to combine portfolios?
During your MF investment journey, you may find that while choosing a plan from the same fund house, you create a new portfolio every time you make a new investment. This may happen when you invest in the same fund house’s schemes through different ways.
Excessive portfolios can become unwieldy when changing personal details, such as bank account numbers. To avoid this, you can combine your portfolios in several ways. One way to do this is to submit a “Folios Merger Request” form, which you can obtain from the fund company’s website. Alternatively, you can visit the websites of RTA CAMS and Kfintech or use platforms such as MFCentral and MFUtility to perform the required actions. Please note that only portfolios held by the same fund house can be merged. Additionally, for consolidation purposes, both the source and target portfolios need to have the same holder name, holding pattern, tax status, bank account details and the same nominator.
How to change details in a mutual fund portfolio?
Over the years, KYC details need to be updated due to reasons such as marriage or relocation to other cities. Therefore, to modify email ID, name, marital status, address and residential status, one needs to fill a “Change of KYC Details Form” which can be obtained from the RTA or AMC website. Additionally, if multiple bank accounts are changed, you will need to submit a “Change of Bank Authorization” form or a “Multiple Bank Enrollment” form. For these changes, MFCentral and MFUtility will also help.
How to get a unified view of your investments?
When you make multiple MF investments through different modes of different AMCs, you may lose track of them. You can keep a close eye on your NSDL Consolidated Account Statement (CAS), an electronic version of which you receive via email each month. Additionally, if you require real-time CAS, please visit the websites of CAMS, MFCentral, and MFUtility.
How to track mutual fund changes and updates?
After release, each MF scenario will undergo updates. For example, in terms of scheme type (open-ended to closed-ended, category change), investment objective (growth or income) and terms of issue, the most important ones are changes in the underlying attributes. Here, you get a 30-day period during which you can withdraw from the fund without facing any withdrawal burden.
If there are significant changes related to the scheme besides the basic attributes, such as change in benchmark index, change in fund manager and introduction of additional facilities like SIP moratorium facility, an addendum will be published on the AMC’s website. In addition, notices of general updates such as dividend statements, annual report escrow, half-year financial reports, half-year portfolios and changes to the underlying TER are posted on the AMC website.
Investors are notified of all these changes via email and newspapers.
Can I switch directly from normal to normal?
At some point, when you are tech-savvy enough to manage your portfolio yourself, you may not need any intermediary to provide operational support. Then, you may want to switch from regular to direct to save on commissions and earn higher returns. But conversion involves offloading existing investments under the regular scheme and purchasing new units under the direct scheme, which will result in capital gains tax. If you decide to switch, you can complete the process yourself or instruct fund houses, RTAs, third-party platforms and MFUtility and MFCentral to carry out the same process on your behalf. Additionally, you can do the same by filling out the form in offline mode.
To convert in a tax-efficient manner, convert those units to which LTCG is applied and make book gains up to Rs 1 lakh per annum in case of equity funds. Or start a new investment from a certain point in time by directly planning the route.
How does salvation work?
When you get closer to your target, you can sell the MF units and use the redemption proceeds to pay for the savings (after paying capital gains tax, if applicable). If you are investing online through AMC, demat account or other platforms, just go to the respective portal and choose to sell some or all of your units. But if you want to go through the offline route, please download the redemption form from the CAMS website and submit and complete it at the nearest CAMS office.
For example, typically, the redemption cut-off time for stock plans is 3:00 p.m. This means that if you redeem before this time, the applicable NAV for which you will receive redemption proceeds will be considered on that day’s basis, otherwise, the NAV of the next business day will be considered. Additionally, after the units are sold, the redemption proceeds will take two trading days to reach your bank account.
How does unit transfer work?
The process of transferring a deceased investor’s MF investments to a claimant is similar in most respects, but there are some key differences in procedures and documentation depending on the type of claimant and holding pattern. There are three main categories of claimants: joint account holders, agents and legal heirs.
Normally, if the first unit holder dies under the joint holding model, the MF units should be transferred to the other surviving holders. To claim the units, the second holder must complete the procedure and provide documents i.e. Transmission Request Form (Form T2), death certificate of the deceased unit holder certified by a notary and gazetted officer, cancellation of the new first unit holder A check bearing the name of the applicant – Print, if PAN card is not provided and KYC is not completed, a copy of PAN card and KYC confirmation form can be used.
If a single unitholder dies, or if all joint holders die when a unitholder appoints an agent, the agent can become a claimant. The documents required here are mostly similar to those required for transfers to other unit holders. Additionally, for transfers up to Rs 2 lakh, the bank manager must attest the signature of the nominee. If the amount exceeds Rs 2 lakh, the signature of the nominee must be attested by a Notary Public or a Judicial Magistrate First Class.
If no nominee is registered, circumstances often change and the transfer process becomes more cumbersome. In such event, the MF units will be transferred to the legal heirs of the unit holder as per the will. In addition to what has been mentioned earlier, if the claim amount is less than Rs. Personal Affidavit of the heirs and No Objection Certificate (NOC) of other legal heirs. Additionally, if the transfer amount exceeds Rs 2 lakh, other documents such as a notarized copy of the will, a succession certificate from the court and a letter of administration or court order (in case of intestate succession) are also required.
The fund house usually completes the transfer of mutual fund units to the claimant within 10 to 30 days after submission of all required documents. The transfer of units held by a deceased investor to a joint holder, agent or legal heir does not involve the redemption of units. Therefore, the transferee of the MF units is not immediately liable for tax on the transfer.