Once the investor has decided which SIP is the best for achieving his financial goals, the next step is to become a contributor to the selected scheme/plan.
Recommended Read : How to Select the Best SIP for Monthly Investment?
Key Information Memorandum (KIM)
The Key Information Memorandum (KIM) is the critical document that all investors must read through. This document contains a wealth of information such as
Information Common to all Equity / Debt Schemes
- dividend policy;
- applicable NAV for subscription and repurchase;
- entry load, exit load and recurring expenses;
- tax implications (including income tax, capital gains tax, securities transactions tax STT, dividend distribution tax, wealth tax and gift tax);
Asset Management Company (AMC) use colour coding to convey the degree of risk associated with a particular scheme.
Know Your Customer (KYC) Compliance
Compliance with Know Your Customer (KYC) guidelines is mandatory for all mutual fund investors. The representative of the fund house or your financial advisor will assist you in completing the formalities which basically require you to provide proof of identity and proof of residence. KYC compliance is a one-time exercise and need not be repeated for future transactions in mutual funds. The submission of PAN Card is mandatory for all investors except those exempted from holding a PAN Card (you will find details on the KYC compliance form). For those who do not hold a PAN card, the preferred documents for establishing proof of identity are Aadhar Card, Passport, Election Card and Driving License though other options are also provided in the KYC compliance form. For proof of address, the investor can submit Passport, Ration Card, Driving License, Election Card, Latest Bank Account Statement, Latest Landline Telephone Bill, Latest Electricity Bill, Latest Gas Bill or Registered Lease/ Sale Agreement for flat (proof of address in the name of the spouse is also accepted). Other options for proof of address are provided in the KYC form. All documents submitted as proof of identity and proof of address must be self-attested.
SIP Application Form
Investors have to provide personal details in the application form. Most importantly, they must indicate the scheme to which they wish to make their contributions and the plan – regular or direct, opt for growth or dividend, and, in case of option for dividend facility, whether dividend is to be reinvested, paid to investor or transferred to another scheme. The monthly investment amount is also to be declared.
Sources of Funds
A Systematic Investment Plan (SIP) is a disciplined approach to investment. Every month a subscription is to be contributed to the Plan (there are also options for daily, weekly, fortnightly and quarterly contributions but the average investor can opt for monthly contributions). The investor should have a regular flow of income which would be the source from which the contributions would flow to the SIP. The source is usually the monthly salary or, perhaps, monthly rental income. The investor is also advised to have a back-up source available in case, in a particular month, the primary source fails for any reason.
Method of Contribution
The contributions could be made by delivery of post-dated cheques to the fund house. In this case, the investor would need to ensure that the account on which the cheques have been drawn is adequately funded so that cheques presented are honoured by the bank. But, today, the method most often preferred is the direct debit or Electronic Clearing Service (ECS) that is offered by all banks and accepted by all fund houses. The bank account of the investor is debited on the due date and the funds are transferred to the SIP. To operate a direct debit arrangement, the investor will be required to complete a bank mandate form and submit it to the fund house which will present it to the bank.
Bank Mandate Form
The bank mandate is an authorization to the bank to debit your account on the specified dates for the specified amount and transfer the amount to the specified SIP. The mandate form calls for application number (for new investors) and folio number (for existing investors), PAN card, KYC acknowledgment and the scheme and SIP details of the investor. Choose a date for the debit to your account that is 3 or 4 days after the source funds are expected to reach your account. Preferably, select a date before the 10th of the month after checking the date options available with the fund house.
All SIP application forms include a provision for appointment of a nominee. Investors should ensure appointment of a nominee with who the fund house can deal in the event of death of the investor
And most importantly, investors must ensure that all the forms are duly signed. Check with the representative of the fund house or your financial advisor before handing over the form. A missing signature could delay the investment program by a month.
Tech savvy investors also have the option of starting a SIP online. This facility is available for existing investors with folios and also for new investors. In the case of new investors, only those who are KYC compliant can generate a new folio online. Once the request is completed, the pre-filled application form is delivered to the e-mail address of the applicant. The application form must be printed, signed and delivered, along with an original cancelled cheque (of the bank account stated in the application), at any branch of the Asset Management Company (AMC). For new investors who are not KYC compliant, while the registration form can be completed on screen, the printed copy duly signed will have to be physically submitted at the office of the AMC along with the mandatory documents as advised in the form.