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SEBI announces digital bank mandate for redemption of mutual fund investments

mutual fundmutual fund accountmutual fund investmentSIP
30 Aug 20246 mins readBy MOFSL

Introduction

When you sell mutual fund units back to the Asset Management Company (AMC), this process is called mutual fund redemption. It lets you liquidate your investment and transfer the proceeds directly  into your account.   

The Securities and Exchange Board of India (SEBI) has advised all AMCs to transfer Systematic Withdrawal Plan (SWP) proceeds and non-demat mutual fund redemption amounts only to the investor’s bank account associated with the folio. This advisory complies with the best industry practices to protect investors.

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As SEBI issues this amendment, you cannot select the bank account to which you wish to transfer redemption proceeds. The funds are transferred only to the linked bank account. Thus, you must link a valid and active bank account to your folio.

You can link a maximum of five bank accounts to your mutual fund folio. You must update the bank account details if you make any changes to continue redeeming mutual funds and receiving dividend credits with ease.

Impact on investors

The change in the redemption process will affect you if the account you have linked to your folio is closed, frozen, or inoperative. For example, if you linked a specific bank account to your mutual fund folio but deactivated it later, you will have trouble redeeming your mutual fund investments. You will need to first update and verify your account details before placing redemption requests.

How to check which bank account is linked to the folio?

If you don’t remember the bank account you linked with your mutual fund folio, here’s the step-by-step process to check the details:

  1. Visit the AMC’s specific website.

  2. The bank details are also available in the fund statement you receive on your registered email address upon allotment of units after a successful purchase order.
  3. Your bank account details are visible on MF Central if your total mutual fund investment is less than Rs. 10 lakh.
  4. The folio statement with the bank details is also available for download from the Registrar and Transfer Agents (RTAs) like Computer Age Management Services Limited (CAMS) or KFin Technologies Limited.

How to update the linked bank account?

You can change your linked bank account by following the steps below:

  1. Visit the MF Central website and log in using your PAN number or registered mobile number.

  2. Select “Submit Service Request” and click on “Change Bank Account Details.”

  3. Select the required folio number and fill in the new bank account details.

  4. Upload a cancelled cheque leaf for your old and new bank account as proof.

  5. Verify all details and submit the change request.

This method is usable if the total mutual fund value does not exceed Rs. 10 lakh. If the assets under management (AUM) are more than Rs. 10 lakh, you will need to update the folio details with the AMC directly.

The steps to change details with AMC are as follows:

  1. Download the change request form from the respective AMC website.

  2. Fill it out with the required details, such as folio number, PAN number, bank details, etc.

  3. Enter the details of the existing and updated bank account.

  4. Add a cancelled cheque leaf of your old and new accounts.

  5. Send a signed copy to your respective AMC.

Documents needed to verify and add bank details at the AMC

The documents you need to update the bank details at the AMC are:

  1. Change of Bank Form from the respective AMC

  2. Proof of old bank account like bank statement, cancelled cheque leaf, or bank closure letter

  3. Proof of new bank account like bank statement or cancelled cheque leaf with your name printed

The process to change or update bank account details takes around 7 to 10 business days for processing.

Summing up

Mutual fund redemption amounts and dividend credits are received only in the bank account linked with your investor portfolio. There is no longer an option to select a bank account. Thus, you must update your bank account details in case of any change or error to ensure a smooth and secure redemption.

 

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