The Indian Mutual Funds Industry is undergoing a rapid change with the Capital Market Regulator, SEBI as well as Government of India bringing in major changes to the markets. NISM has also subsequently announced revision of its NISM Series VA - Mutual Fund Distributors Certification Examination with effect from August 14, 2018 factoring all the recent changes in the industry.
Our team at PrepCafe has closely studied these changes and enumerated in detail as part of this blog post. We hope industry participants as well as exam takers will benefit from this article. Please do share your feedback in the comments section below.
1. Scheme Categorization
There are multiple mutual fund schemes offered by 42 mutual funds – and multiple options within those schemes which makes it difficult for investors to choose between them.Greater dissemination of industry information through various media and availability of professional advisors in the market helps investors handle this overload. In order to overcome this choice overload, SEBI has introduced the categorisation of mutual funds to ensure uniformity in characteristics of similar type of schemes launched by different mutual funds. This will help investors to evaluate the different options available before making informed decision to invest.
Definition of Large Cap, Mid Cap and Small Cap:
In order to ensure uniformity in respect of the investment universe for equity schemes, it has been decided by SEBI to define large cap, mid cap and small cap as follows:
a. Large Cap: 1st -100th company in terms of full market capitalization
b. Mid Cap: 101st -250th company in terms of full market capitalization
c. Small Cap: 251st company onwards in terms of full market capitalization
Mutual Funds would be required to adopt the list of stocks prepared by AMFI in this regard and AMFI would adhere to the following points while preparing the list:
a. If a stock is listed on more than one recognized stock exchange, an average of full market capitalisation of the stock on all such stock exchanges, will be computed.
b. In case a stock is listed on only one of the recognized stock exchanges, the full market capitalization of that stock on such an exchange will be considered.
c. This list would be uploaded on the AMFI website and the same would be updated every six months based on the data as on the end of June and December of each year. The data shall be available on the AMFI website within 5 calendar days from the end of the 6 months period.
Types of Equity Schemes (Section 1.2.4)
SEBI has introduced categorisation of open-end mutual funds to ensure uniformity in characteristics of similar type of schemes launched by different mutual funds. This will help investors to evaluate the different options available before making informed decision to invest. SEBI circular No. SEBI/HO/IMD/DF3/CIR/P/2017/114 dated October 6, 2017 andSEBI/HO/IMD/DF3/CIR/P/2017/126 dated December 4, 2017.
As per the SEBI circular, open-end equity mutual fund schemes have been categorized under the following sub heads:
Multi Cap Fund: An open ended equity scheme investing across large cap, mid cap, small cap stocks. The minimum investment in equity and equity related instruments shall be 65 percent of total assets.
Large Cap Fund: An open ended equity scheme predominantly investing in large cap stocks. The minimum investment in equity and equity related instruments of large cap companies shall be 80 percent of total assets.
Large and Mid Cap Fund: An open ended equity scheme investing in both large cap and mid cap stocks. The minimum investment in equity and equity related instruments of large cap companies shall be 35 percent of total assets. The minimum investment in equity and equity related instruments of mid cap stocks shall be 35 percent of total assets.
Mid Cap Fund: An open ended equity scheme predominantly investing in mid cap stocks. The minimum investment in equity and equity related instruments of mid cap companies shall be 65 percent of total assets.
Small cap Fund: An open ended equity scheme predominantly investing in small cap stocks. Minimum investment in equity and equity related instruments of small cap companies shall be 65 percent of total assets.
Dividend Yield Fund: An open ended equity scheme predominantly investing in dividend yielding stocks. Scheme should predominantly invest in dividend yielding stocks. The minimum investment in equity shall be 65 percent of total assets.
Value Fund or Contra Fund: A value fund is an open ended equity scheme following a value investment strategy. Minimum investment in equity & equity related instruments shall be 65 percent of total assets. A contra fund is an open ended equity scheme following contrarian investment strategy. Mutual Funds will be permitted to offer either Value fund or Contra fund.
Focused Fund: An open ended equity scheme investing in maximum 30 stocks (the scheme needs to mention where it intends to focus, viz., multi cap, large cap, mid cap, small cap). Minimum investment in equity & equity related instruments shall be 65 percent of total assets.
Sectoral / Thematic: An open ended equity scheme investing in a specific sector such as bank, power is a sectoral fund. While an open ended equity scheme investing in line with an investment theme. For example, an infrastructure thematic fund might invest in shares of companies that are into infrastructure, construction, cement, steel, telecom, power etc. The minimum investment in equity & equity related instruments of a particular sector/ particular theme shall be 80 percent of total assets.
Equity Linked Savings Scheme (ELSS): An open ended equity linked saving scheme with a statutory lock in of 3 years and tax benefit. The minimum investment in equity and equity related instruments shall be 80 percent of total assets (in accordance with Equity Linked Saving Scheme, 2005 notified by the Ministry of Finance).
Types of Debt Funds (Section 1.2.5):
As per the SEBI circular, open-end debt mutual fund schemes have been categorized under the following sub heads:
Overnight Fund: An open ended debt scheme investing in overnight securities. The investment is in overnight securities having maturity of 1 day.
Liquid Fund: An open ended liquid scheme whose investment is into debt and money market securities with maturity of upto 91 days only.
Ultra Short Duration Fund: An open ended ultra-short term debt scheme investing in debt and money market instruments with Macaulay duration between 3 months and 6 months.
Low Duration Fund: An open ended low duration debt scheme investing in debt and money market instruments with Macaulay duration between 6 months and 12 months.
Money Market Fund: An open ended debt scheme investing in money market instruments having maturity upto 1 year.
Short Duration Fund: An open ended short term debt scheme investing in debt and money market instruments with Macaulay duration between 1 year and 3 years.
Medium Duration Fund: An open ended medium term debt scheme investing in debt and money market instruments with Macaulay duration of the portfolio being between 3 years and 4 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 4 years.
Medium to Long Duration Fund: An open ended medium term debt scheme investing in debt and money market instruments with Macaulay duration between 4 years and 7 years. Portfolio Macaulay duration under anticipated adverse situation is 1 year to 7 years.
Long Duration Fund: An open ended debt scheme investing in debt and money market instruments with Macaulay duration greater than 7 years.
Dynamic Bond: An open ended dynamic debt scheme investing across duration.
Corporate Bond Fund: An open ended debt scheme predominantly investing in AA+ and above rated corporate bonds. The minimum investment in corporate bonds shall be 80 percent of total assets (only in AA+ and above rated corporate bonds)
- Provisions of SEBI Circular No SEBI/IMD/DF/19/2010 dated November 26, 2010 shall be followed for Uniform cut-off timings for applicability of Net Asset Value in respect of Liquid Fund and Overnight Fund.
- All provisions mentioned in SEBI circular SEBI/IMD/CIR No.13/150975/09 dated January 19, 2009 in respect of liquid schemes shall be applicable. Also, provisions of SEBI Circular No SEBI/IMD/DF/19/2010 dated November 26, 2010 shall be followed for Uniform cut-off timings for applicability of Net Asset Value in respect of Liquid Fund and Overnight Fund.
Credit Risk Fund: An open ended debt scheme investing in below highest rated corporate bonds. The minimum investment in corporate bonds shall be 65 percent of total assets (only in AA (excludes AA+ rated corporate bonds) and below rated corporate bonds).
Banking and PSU Fund: An open ended debt scheme predominantly investing in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. The minimum investment in such instruments should be 80 percent of total assets.
Gilt Fund: An open ended debt scheme investing in government securities across maturity. The minimum investment in G-secs is defined to be 80 percent of total assets (across maturity).
Floater Fund: An open ended debt scheme predominantly investing in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives). Minimum investment in floating rate instruments (including fixed rate instruments converted to floating rate exposures using swaps/derivatives) shall be 65 percent of total assets.
2. Mutual Fund Industry Statistics updated to 2018
The MF Industry's AUM has grown from Rs. 5.87 trillion as on 31st March, 2012 to Rs. 22.71 trillion as on 31st March, 2018, more than three and half fold increase in a span of 6 years.
The Industry's AUM had crossed the milestone of Rs. 10 Trillion ( Rs. 10 Lakh Crore) for the first time in May 2014 and in a short span of about four years, the AUM size has increased more than two folds and stood at Rs. 22.71 Trillion (Rs. 22.71 Lakh Crore) as on 31st March, 2018.
The total number of accounts (or folios as per mutual fund parlance) as on March 31, 2018 is 7.13 crore (71.3 million).Nearly 83% of the investor accounts are in equity oriented schemes.
3. Detailing of Central KYC (Section 2.3.8 Central KYC (cKYC))
cKYC refers to Central KYC (Know Your Customer), an initiative of the Government of India. The aim of this initiative is to have a structure in place which allows investors to complete their KYC only once before interacting with various entities across the financial sector. cKYC is managed by CERSAI (Central Registry of Securitization Asset Reconstruction and Security Interest of India), which is authorized by the Government of India to function as the Central KYC Registry (cKYCR).
The objective of cKYCR is to reduce the burden of producing KYC documents and getting those verified every time when the investor deals with a financial entity for the first time. Thus, cKYCR will act as centralized repository of KYC records of investors in the financial sector with uniform KYC norms and inter-usability of the KYC records across the sector.
Besides the information asked in KYC from the client, cKYC requires certain additional information from the client like investor's maiden name, mother's name, FATCA information etc. The intent behind this is to know and understand the new people entering the markets in a much better manner and to curb the money laundering problem at the root itself.
To get cKYC done, one may approach a financial intermediary regulated by RBI, SEBI, IRDAI or PFRDA like a bank, a NBFC, a stock broker, AMC, a distributor or an Insurance company. After filling the cKYC form, copies of required documents have to be attached. The form and documents
are then checked for completeness and correctness by the intermediary by performing an in-person verification (IPV). After the successful completion of this process, an investor is allotted a 14 digit KYC Identification Number (KIN). Thereafter the investor is said to be KYC Compliant. The KIN is allotted to an eligible application within 4-5 working days by CERSAI.
4. Change in Objectives of AMFI (Section 3.1.3 Association of Mutual Funds in India)
Surprisingly, NISM has now deleted one of the major objectives of AMFI, i.e., to develop a cadre of well-trained agent-distributors and to implement a programme of training and certification for all intermediaries and others engaged in the industry.
This further makes evident SEBI's growing partisanship against the Independent Financial Advisor (IFA) community.
5. Update to Investment Restrictions for Schemes (Section 3.2)
Provided no sponsor of a mutual fund, its associate or group company including the Asset Management Company of the fund, through the schemes of the mutual fund or otherwise, individually or collectively, directly or indirectly, have 10% or more of the share-holding or voting rights in the asset management company or the trustee company of any other mutual fund.
Restrictions Pertaining to Investment in Equity
The Scheme shall not invest more than 10 percent of its net assets in the equity shares and equity related instruments of a company. The limit is not applicable for investments in Index/sector/industry specific schemes.
Not more than 5 percent of the net assets of the scheme will be invested in unlisted equity shares and equity related instruments in case of open ended scheme and 10% of its NAV in case of close ended scheme.
6. Timelines for Updating Annual Scheme Recurring Expenses on AMC website
These are the fees and expenses for operating the scheme. These expenses include Investment Management and Advisory Fee charged by the AMC, Registrar and Transfer Agents' fee, marketing and selling costs etc.
These estimates have been made in good faith as per the information available to the Investment Manager based on past experience and are subject to change inter-se. Types of expenses charged shall be as per the SEBI (MF) Regulations. (The regulatory limits on Annual Recurring Expenses and Investment Management & Advisory fees in terms of Regulation 52 shall be disclosed).
The mutual fund would update the current expense ratios on the website within two working days mentioning the effective date of the change.
NEW VERSION: The mutual fund would update the current expense ratios on the website at least three working days prior to the effective date of the change. Additionally, AMCs shall provide the exact weblink of the heads under which TER is disclosed in their website
7. Further Detailing of New Cadre of Distributors:
SEBI, in September 2012, provided for a new cadre of distributors, such as postal agents, retired government and semi-government officials (class III and above or equivalent), retired teachers and retired bank officers with a service of at least 10 years, and other similar persons (such as Bank correspondents) as may be notified by AMFI/ AMC from time to time. These new distributors are allowed to sell units of simple and performing mutual fund schemes. Simple and performing mutual fund schemes comprises diversified equity schemes, fixed maturity plans (FMPs), Liquid and Money Market schemes, Retirement benefit schemes having tax benefits and index schemes that have returns equal to or better than their scheme benchmark returns during each of the last three years. Diversified equity schemes category shall be large-cap oriented and well-diversified and shall not include thematic or sectoral funds, small, mid and micro-cap funds or concentrated funds which intend to hold less than 30 stocks in their portfolio according to the offer document.
The aforementioned mutual funds should have returns equal to or better than their scheme benchmark returns during each of the last three years. Such funds are called 'performing' mutual funds.
AMFI Committee on Operations and Compliance has formulated and prescribed best practice guidelines to be followed by all AMCs with respect to the identification of diversified equity schemes and disclosure of schemes that are eligible to be sold by the new cadre of distributors.
The list of schemes shall be compiled annually based on the performance of the scheme during each of the last three financial years (April to March). The list shall be reviewed and modified every year in April.
AMCs are requested to disclose the list of eligible schemes on their website.
The new cadre of distributors are eligible to sell only simple and performing mutual fund schemes as mentioned above, the AMCs shall put in place a proper validation process to ensure that the new cadre of distributors sell only the schemes they are allowed to sell. This validation shall be performed even at sub broker level, if the transaction has been procured by a new cadre of distributor who is acting as a sub broker of the ARN holder. The same shall be implemented along with the implementation of validation of EUIN-ARN mapping.
Transaction through a new cadre of distributors in schemes other than eligible schemes shall be rejected with intimation to the investor. AMCs shall review and monitor such rejections in respect of transaction done by new cadre of distributors (including sub-brokers) and if they observe that there is frequent rejection of transactions with respect to any new cadre distributor/sub broker, the same should be reported to AMFI properly.
NISM Series V-B: Mutual Fund Foundation Certification Examination and Mutual Fund Foundation CPE Program have been specially designed by NISM for this new cadre of distributors.
8. Celebrity Endorsements of Mutual Funds at Industry level:
SEBI has permitted celebrity endorsements at industry level for the purpose of increasing awareness of Mutual Funds as a financial product category. However, such celebrity endorsements of Mutual Funds at industry level are subject to the following conditions:
- The celebrity endorsements shall not promote a scheme of a particular Mutual Fund or be used as a branding exercise of a Mutual Fund house/AMC.
- Expenses towards such celebrity endorsements shall be limited to the amounts that are aggregated by Mutual Funds at industry level for the purpose of conducting investor education and awareness initiatives.
-Prior approval of SEBI shall be required for issuance of any endorsement of Mutual Funds as a financial product, which features a celebrity for the purpose of increasing awareness of Mutual Funds.
9. Disclosure of Total Expense Ratio (TER)
AMCs need to prominently disclose on a daily basis, the TER (scheme wise, date wise) of all schemes under a separate head – "Total Expense Ratio of Mutual Fund Schemes" on their website and on the website of AMFI in downloadable spreadsheet format (see Box 6.1).
Any changes in the base TER (i.e. TER excluding above mentioned additional expenses and Goods and Services Tax on investment and advisory fees) in comparison to the previous base TER charged to any scheme to be communicated to investors of the scheme through email or SMS at least three working days prior to effecting such change.
For example, if changed TER is to be effective from January 8, 2018 (Monday), then notice shall be given latest by January 2, 2018, considering at least three working days prior to effective date. Further, the notice of change in base TER shall be updated in the aforesaid section of website at least three working days prior to effecting such change.
However, any decrease in TER due to various regulatory requirements would not require issuance of any prior notice to the investors. Further, such decrease in TER shall be immediately communicated to investors of the scheme through email or SMS and uploaded on the website.
The above changes in the base TER shall be intimated to the Board of Directors of AMC along with the rationale recorded in writing. The changes in TER shall also be placed before the Trustees on quarterly basis along with the rationale.
10. Provisions with respect to Goods and Services Tax (GST)
- AMC(s) can charge GST, as per applicable Taxation Laws, to the schemes within the limits prescribed under SEBI (Mutual Fund) Regulations
- GST on fees paid on investment management and advisory fees shall be charged to the scheme in addition to the overall limits specified earlier.
- GST on other than investment and advisory fees shall be charged to the scheme within the maximum limit of TER
- GST on exit load, if any, shall be deducted from the exit load and the net amount shall be credited to the scheme.
- GST on brokerage and transaction cost paid for execution of trade, if any, shall be within the limit of TER
Mutual funds/AMCs shall launch new schemes under a single plan and ensure that all new investors are subject to single expense structure. Investors, who have already invested as per earlier expense structures based on the amount of investment in different plans (such as retail, institutional, superinstitutional), will be subject to single expense structure for all fresh subscriptions. These plans will continue till such investors remain invested in the plan.
Further, investor also has the option of investing through direct plans. Since the direct plans do not entail distributor commissions, they may have a lower expense ratio.
11. Changes to Valuation Norms
When a debt security (other than G-secs) is purchased by way of private placement, the value at which it was bought may be used for a period of fifteen days beginning from the date of purchase.
12. Securities Transaction Tax (STT)
When an investor sells units of an equity fund in the stock exchange, or offers them for re-purchase to the fund, he will have to incur Securities Transaction Tax (STT) i.e. STT is applicable only on redemption/switch to other schemes/ sale of units of equity oriented mutual funds whether sold on stock exchange or otherwise.
STT is not applicable on purchase of units of an equity scheme. It is also not applicable to transactions in debt securities or debt mutual fund schemes.
13. Additional Tax on Income Distributed
Earlier Dividend Distribution Tax was applicable only on Debt Schemes. This was revised in the new workbook as follows:
There is a tax on dividend distributed by mutual fund schemes (equity and debt) which is paid by the mutual fund. The dividend that the unit holders receive is however exempt from tax in the hands of the recipient.
Applicability of Dividend Distribution Tax (DDT) for FY 2018-2019 is as follows:
14. Changes to Capital Gains Tax
Capital Gain is the difference between sale price and acquisition cost of the investment. Since mutual funds are exempt from tax, the schemes do not pay any tax on the capital gains they earn. Investors in mutual fund schemes however need to pay tax on their capital gains as follows:
Equity Oriented Schemes:
|Equity oriented Scheme
||10% + 12% Surcharge +
4% cess = 11.648%
|10% + 12% Surcharge +
4% cess = 11.648%
|10% + 12% Surcharge +|
4% cess = 11.648%
|Money Market or Liquid Schemes/Debt Schemes|
(other than Infrastructure Debt Fund)
|25% + 12% Surcharge + 4% cess = 29.12%||30% + 12%Surcharge + 4% cess = 34.944%||25% + 12% Surcharge + 4% cess = 29.12%|
|Infrastructure Debt Fund||25% + 12% Surcharge + 4% cess = 29.12%||30% + 12% Surcharge + 4% cess = 34.944%||5% + 12% Surcharge + 4% cess = 5.824%|
A tax of 10% (plus applicable surcharge and cess) is applicable for all resident tax payers (excluding domestic companies and few other specified entities) for dividend income of more than Rs. 10 lakh received from a domestic company(ies).
|Long Term Capital Gains*(units held for more than
|Short Term Capital Gains|
(units held for 12 months
*As per the Finance Act 2018 Tax to be levied at the rate of 10% (without indexation benefit) on long term capital gains exceeding Rs. 1,00,000 in a financial year provided transfer of such units is subject to Securities Transaction Tax. All capital gains upto January 31, 2018 have been grandfathered.
Debt Oriented Schemes:
|Long Term Capital Gains (units held for more than 36 months)
||20% after indexation
||20% after indexation
||Listed - 20% after|
Unlisted – 10% without
|Short Term Capital Gains (units held for 36 months|
|30% (assuming the investor falls in the highest tax bracket)||30% (applies to companies|
other than those engaged
25% (If total turnover or gross receipts during the
financial year 2016-17
does not exceed Rs. 250
|30% (assuming the investor falls in the highest tax bracket)|
$ Surcharge at 15% on base tax, is applicable where income of Individual/HUF unit holders exceeds Rs. 1 crore and at 10% where income exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore. As per the Finance Act 2018, "Health and Education Cess" will be levied at the rate of 4% on aggregate of base tax and surcharge.
@ Surcharge at 7% on base tax is applicable where income of domestic corporate unit holders exceeds Rs 1 crore but does not exceed Rs. 10 crores and at 12% where income exceeds Rs. 10 crores. As per the Finance Act 2018, "Health and Education Cess" will be levied at the rate of 4% on aggregate of base tax and surcharge.
# Short term/ long term capital gain tax (along with applicable Surcharge and "Health and Education Cess") will be deducted at the time of redemption of units in case of NRI investors.
The entire section on Taxability of Mutual Fund Investor has been deleted from the new workbook.
15. Centralised KYC Registration Agencies (KRA)
SEBI has instituted a centralised KYC process for the capital market, including mutual funds. This is a significant benefit for the investor. Based on completion of KYC process with one capital market intermediary, the investor can invest across the capital market. KYC Registration Agencies (KRAs) facilitate this centralised KYC process.
Once a capital market intermediary has performed an In Person Verification (IPV) of the investor and other documentation requirements are in place, and the intermediary uploads the investor's data to the database of a KRA, the KYC is valid across the capital market. The investor can benefit from that KYC to invest in any part of the capital market (not limited to mutual funds).
Some of the key functions of Central KYC Registry have been mentioned below:
- It shall be responsible for electronically storing, safeguarding and retrieving the Know Your Customer (KYC) records and making such records available online to reporting entities or Director. **NEW**
- Information updated about a customer shall be disseminated on request by Central KYC Registry to any reporting entity that avail the services of the Central KYC Registry in respect of the customer.
- The services of the Central KYC Registry will be available on payment of prescribed fee, in advance.
- It shall process the KYC records received from a reporting entity for de-duplication and issue a unique KYC Identifier for each client to the reporting entity.
KYC through Intermediaries
Where the investors choose to hold the units in demat form or for applicants who choose to invest through the stock exchange infrastructure, the KYC performed by the Depository Participant will be considered in compliance with the KYC norms.
16. Electronic Modes of Payment
Digital payment mediums or electronic payment mediums use digital modes for making and receiving payments. There is no use of cash in physical form and the payment cycle is completed online. Digital payments provide advantages of ease and speed of payment process, safety of funds and provide a record of funds usage. However, there is the risk of data theft and some of the modes of payment may be difficult for a person not comfortable with technology.
The Digital Payment Mediums available include the following:
Internet banking is the most commonly used digital payment service. It provides access to the banking services anywhere and at anytime through the official website of the banking institution. Net banking allows fund transfers to own and third-party accounts, online bill payments, online shopping and other such facilities that involves making and receiving payments. The National Electronic Fund Transfer (NEFT) facility allows digital transfer of funds between bank accounts. The Immediate Payment Service
(IMPS) is an instant interbank electronic fund transfer available to registered users of banks through mobile phones, net banking and ATMs.
Remittance can also be made directly to the bank account of the scheme through Real Time Gross Settlement (RTGS) / National Electronic Funds Transfer (NEFT) facilities (for transfers within India) or SWIFT transfer (for transfers from abroad). While RTGS transfers are instantaneous, NEFT transfers are batched together in the banking system, and effected at various times during the day. SWIFT transfers tend to pass through multiple banks in different geographies, and multiple levels within the same bank, resulting in delays. All banks and their branches are not enabled to provide electronic transfer facilities.
Before money is remitted directly to the mutual fund, it is advisable to get the proper bank account details from the AMC / distributor. The details of the mutual fund, such as account number, account name, IFSC details etc. are required to do an electronic transfer. Some mutual funds may provide this information in the application form. The bank will generate a unique transaction reference number. The acknowledgement from the bank for the transfer request has to be appended along with the application as proof of transfer. The account number mentioned in the transfer instruction copy provided as proof should have the first holder as one of the account holders.
Electronic Clearing Service (ECS) / Standing Instructions (SI) are a convenient form of investment in a SIP. On the specified date, each month, the bank will automatically transfer money from the investor's account to the account of the mutual fund. The bank accepts 'Standing Instructions' (also called 'Direct Debit') if both investor and mutual fund have an account with the same bank. If the two accounts are in different bank, then ECS is used.
M-Banking i.e. mobile banking has now become a convenient way for investment and transaction purpose.
Unified Payment Interface (UPI)
The UPI allows fund transfer between accounts through the mobile app. The users have to register for mobile banking facility to be able to use the app. There are many UPI apps available such as BHIM, SBI UPI app, HDFC UPI app, iMobile, PhonePe app, Aadhar app etc. which one can download on their phone.
After the application (app) is downloaded a Virtual Payment Address (VPA) has to be created by going through an authentication process. This is like an email address and links the UPI app to the user's bank account through the mobile phone registered with the bank. The VPA can be changed if so desired.
Multiple bank accounts can be linked to a VPA, but one account has to be designated as the default account. To make payments using the UPI, one needs the VPA of the payee. The user can also receive funds using the UPI. A new version of the UPI allows transfer of funds using the Aadhaar number instead of a VPA.
Aadhaar Enabled Payment Service (AEPS)
AEPS allows bank to bank transaction using the Aadhaar number of the customer. The Aadhaar number has to be linked to the bank account to be able to use AEPS. The account holder can withdraw and deposit cash and transfer money to another account linked to the Aadhaar number. The AEPS uses the
fingerprint of the individual as the password to authorize transactions and is thus a secure mode of transfer of funds.
National Unified USSD Platform (NUUP)
NUUP based mobile banking allows transactions even without a smartphone and internet. The code *99# dialed from the phone registered with a bank for a bank account allows transactions such as making payments, checking balances, fund transfers and getting a mini statement. Most leading banks support this service. NUUP is currently available in 11 regional languages.
Cards are the most commonly used mode of digital payments. Debit cards are issued by banks to their account holders and allow card holders to carry out fund transactions linked to their bank account.
Credit cards are issued by banks and other approved entities and allow credit card holders to use the card up to approved credit limits. Prepaid cards can also be used to make card payments. The cards are used by swiping it at the merchants' PoS device. A PIN may be required to confirm the transaction in case of a debit card. Online payments can also be made using cards. The drawback is that the merchant may have to pay a charge on each transaction done through credit cards.
E-Wallets are a virtual or digital version of the physical wallet. Money is loaded to the E-Wallet and used as required to make payments and transfer funds to other E-Wallets. However, they cannot be used to transfer money to a bank account. Using the E-Wallet does not require a PIN or Password which makes them susceptible to unauthorized use by anyone who can get access to the mobile phone on which the Wallet is stored. Paytm, State Bank Buddy, ICICI Pockets and FreeCharge are commonly used E-Wallets.
The use of E-Wallets is subject to certain conditions like following regulations pertaining to cut-off timings, time stamping etc. MFs/AMCs shall ensure that total subscription through e-wallets for an investor is restricted to Rs.50,000/- per investor per financial year. This limit of Rs.50,000/- would be an umbrella limit for investments by an investor through both E-Wallet and/or cash , per mutual fund per financial year. MFs/ AMCs shall ensure that only amounts loaded into e-wallet through cash or debit card or net banking, can be used for subscription to MF schemes. Any amount loaded into e-wallet through credit card, cash back, promotional scheme etc. are not allowed for subscription to MF schemes. Also no third party transactions are allowed through e-wallets.
Digital payments such as Net Banking, Debit cards, UPI are amongst the accepted modes of payment for mutual fund schemes currently.
Instant Access Facility (IAF)
IAF facilitates credit of redemption proceeds in the bank account of the investor on the same day of the redemption request. The MFs/AMCs can offer IAF only in Liquid schemes of the mutual fund. The monetary limit under the IAF is Rs.50,000 or 90% of latest value of investment in the scheme, whichever is lower. This limit is applicable per day per scheme per investor.