No Third Party Cheques

Association of Mutual Funds in India (AMFI) issued best practice guidelines on ‘Risk mitigation process against third party cheques in mutual fund subscriptions’. In line with these recommendations Mutual Funds shall not accept applications for subscriptions with third party payment instruments .

What is a Third-Party instrument
· 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.

Exception to the Rule
· 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);

· Payment by employer on behalf of employee under Systematic Investment Plan (SIP) facility through payroll deductions;

· Custodian on behalf of an FII or a Client.

· Payment received from a joint bank account where the first holder of the mutual fund folio is one of the joint holders in the bank account from which payment is made.

Source HDFC Mutual Fund

Filling your Mutual Fund Application - watchout for these

Today i received a email from Quantum Mutual Fund , with four points to look out for when filling your Mutual Fund Application either for SIP or Lump sum investment . I have added a few more to those four

• Cheque in favour of the Scheme Name

The cheque that you issue must always be in the name of the fund that you are investing in . For example in case you are investing in HDFC Top 200 Fund , then cheque must be drawn in favour of "HDFC Top 200 Fund" and not in favour of HDFC Mutual fund .

• Wrongly dated Cheque

This pertains to SIP cheques , Make sure the First cheque that you submit withe application is dated , atleast on the day of submissin of the application , as the Cheque be send for collection on the day of submission

Example : In case you are submitting an application on 10th of a month for a SIP to start from 15th of each month , Please make sure the date on the cheque is 10th or pre dated to 10th , as MF will send it for collection on the very same day and not on 15th and actually SIP would start at least a month from date of submission of application not before that .

• Wrong SIP start date

SIPs usually start atleast a month from date of submission , never before that , so make sure your SIP start date is a month away and not before that .

• No Third Party Cheques

If you are investing in the name of your spouse make sure you are attaching a cheque from your spouse's account . That is, person in whose name the mutual fund is bought and person who is issuing the cheque must be same .

This is new regulation being bought in to prevent MF agents from misuse client cheques. To buy units in their own name.Watch out for a detailed post on this !!!!

• Fill in your Email Id

Have a email Id and make sure that you use the same email Id for all the MF investments , as you can later use this to get a consolidate statement across MFs from camsonline.com

• Fill in Nomination Details

Always have nominee for your MF folio

• KYC compliant

If possible be KYC compliant , this may not seem as necessary when you start investing , but down the line in case you wish to make a lump sum investment of more than Rs.50,000/- you will not be allowed to do so , unless you are KYC compliant.

Infrastructure Bonds and Demat Account

Better sense seens to have prevailed over the issuers of Infrastructure Bonds . After the first of the issues from IFCI , which issued these bonds only in compulsory demat mode, IDFC , L&T are not so particular about the compulsory demat mode . Must be the low key responce to the issue that is forcing current issuers to, not only extend the issue period but also to issue these Infrastructure Bonds in non demat mode, provided KYC guidelines are adhered to

KYC guidelines :

You must already have a KYC compliance letter , which you must have used for your MF investments , else you must submit these documents along with Bonds application

a) PAN card photocopy

b) Address proof

You can check if you are KYC compliant from this link http://www.cvlindia.com/inquiry_kyc01.asp

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Tax Deduction at Source (TDS)

Tax deduction at source , is the tax which a person responsible for making a payment has to deduct from the amount he is paying , in lieu of the tax the receiver of the amount is suppose to pay and deposit it into the government coffer, quoting PAN of the receiver of the amount .

This one of the most effeciant ways of tax collection for the government .

Take the case of the transaction that took place between Vodafone and Hutch . When Hutch sold its telecom business to Vodafone , as per law Vodafone which was making the payment , should have resorted to TDS and must have paid Hutch the balance amount . But they did not , claiming that both Hutch and Vodafone , were Non Indian companies ( or some reason like that ) .

But now the Indian courts have decided that Vodafone , must have deducted TDS before they paid Hutch , hence the TDS amount , which must ideally have been paid by Hutch, would now have to be paid by Vodafone and the amount involved is a staggering $2 billion as TDS along with another $2 billion as penalty.

For lesser mortals like us , we see our employer resorting to TDS every month when our salaries are credited . Now the question is how do we check if that amount has been credited to the government.

Well this is what you could do
Log on to the website http://www.incometaxindiaefiling.gov.in/ and register here . After you login in navigate to My Accounts > View Tax Credit Statement (Form 26AS)

you will able to see all the TDS credits in your account across different financials years

What is Dividend Stripping

Imagine a situation where a investor would buy MF units just before the record date of a MF dividend , pockets the dividend and then sell the unit at a loss , thus showing it as a capital loss and then tries to adjust the capital loss with some other capital gains is known as dividend stripping .

Let me give you an example , suppose you bought some units of MF at an NAV of Rs.25 , after few days , the AMC annouces a dividend payout of Rs.3 per unit . So on the date the dividends are paid out to you the NAV of the scheme gets adjusted to Rs.22 ( 25-3 ) . Now, if you look just at the NAV , yes you are in a loss , but since dividends have already been credited to your account you are actually not at a loss .
Also note here that in case of Equity MFs , dividend is totally tax free in the hands of the Investor

Government figured this loop hole , and bought a fix for this and this is the fix
If an investor buys MF units within THREE months prior to the record date of a dividend, and then sells those MF units within NINE months after the record date, any capital loss from the transaction would not be allowed to be set off against other capital gains of the investor, up to the value of the dividend income exempted.

How many Bank account you ought to have

I would recommend that a salaried person , Ideally must have atleast three accounts

First of the account is the Salary account , the account into which your salary would get credited , this account would not be used for any other purpose other then salary credit . The day you change your job and the new employer is not able to use the existing account this account must be closed

Second account would be your Investment Account , this account would be used to route all your investment , all your premium payments ,credit card payments,all ECS, all bill payments . Take care to choose a bank for this account ,which would provide internet banking ( with a very good customer care ), bank which would proactively make sure that it is enrolled as preferred payment bank across various vendors and service providers.

Third account would be your Emergency account , this account would be used to put some or substancial money for emergency and This account must be , no excuse, has to be a sweep account , so that money lying here will not just lie idle, but earn optimal interest .

What is advantage of splitting accounts , well
1) When closing old unused salary account , you are sure , you will never receive DDs,ECS request , which will be drawn on the closed account , as all investment were routed through Investment account

2) You want to find detail of all payments , Investments made , Dividends received just get a statement of your Investment account and lo .. all details are there for you

3)You are concerned , that you may accidently invest money in illiquid instrument , money meant for emergency , that would never happen as your emergency cash is in a totally different account

Image : FreeDigitalPhotos.net,Photographer: Carlos Porto

How to store your important documents

The latest scanners allows you to not only scan your important documents , but would also allow you to scan a set of related documents into a compact PDF document and then email them, so that it can be access online or write it on to a DVD .

This is a very elegant way to of storing documents . Imagine what you can do with this feature

a) Scan all you tax returns say in blocks of five years as a single PDF document
b) Scan all your educational marks card/Certificate as a single PDF document
c) Scan all your documents like Driver License , PAN card as a single PDF document
d) Scan all your Life Insurance Policies as single document , so your family can easily find them

There could be more uses ...above would be good list to start off with

Image : FreeDigitalPhotos.net,Photographer: Salvatore Vuono