No third-party cheques for mutual fund investments

The move is part of efforts to check fraudulent activities by mutual fund agents and distributors, some of whom have been found to be collecting cheques from investors and depositing them for investments in their own names.

After receiving several such complaints against agents and distributors, fund houses have decided not to accept third-party cheques for mutual fund investments with effect from November 15.

"In order to protect the interest of the investors, AMFI has issued best practice guidelines to all AMCs advising them not to accept third party cheques in respect of Mutual Fund Investments (with a few exceptions) effective from November 15, 2010," industry body Association of Mutual Funds in India (AMFI) said in a circular to all the fund houses.

Even in case of exceptions, the fund houses would have to ensure that the payments are coming from entities duly authorised by the actual investors.

The exceptions include payments by "parents/grand-parents /related persons on behalf of a minor for a value not exceeding Rs 50,000, payment by employer on behalf of employee under systematic investment plans (SIP) through payroll deductions and a custodian on behalf of an FII or a client."

In such cases, the fund houses would have to ensure compliance with mandatory Know-Your-Customer and other declaration norms by the investor and the person making the payments.

Such declarations would have to include details on the bank accounts from which payments are being made and the relation with the investor.

AMFI has also asked the fund houses to verify the source of funds to ensure that funds are actually coming from the drawer's account.

To further identify cases of third-party payments, the fund houses would ask investors for details of bank accounts linked to mutual fund investments and get a certificate from the bank for payments through instruments like pay orders, demand drafts and banker's cheques.

In case of payments being made through online transfer, such as RTGS, NEFT and ECS, the MF investment application would need to be accompanied by a copy of the instruction from the investor to the bank.