a. 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.
b. 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.
15th Nov’2010. AMC / Karvy will reject subscription transactions in case it is established that the source account is from third party.
There are primarily two inherent risks involved in accepting investment money from a person other than the beneficial owner of the investment (referred to as 3rd party): Fraud risk (using one investor’s cheque to fund a different investor’s account) Non-Adherence to PMLA requirements
Yes there are exceptions. Asset management Companies (AMCs) should not accept subscriptions with Third-Party payments except in the following exceptional situations:
a. Determining the identity of the Investorand the person making payment i.e. mandatory Know Your Clients (KYC) for Investor and the person making the payment.
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
c. 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.
The following process is recommended for identifying Third-Party Cheque:
a. 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.
" 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) "