New Process for Transfer of Mutual Fund Units in Non-Demat Mode

 

Key Highlights of AMFI Best Practices Guidelines (Circular No. 116 / 2024-25)

Background

• SEBI regulations permit mutual fund units to be freely transferable unless otherwise restricted.
• While units in demat mode are freely transferable, units in SoA (non-demat) mode require dematerialization for transfer.
• Challenges with SoA transfers include the risk of duplicate transfers and lack of visibility into pledges or redemptions until the transfer is registered.
• To address investor and distributor concerns, AMFI proposes a phased introduction of the facility for transferring units held in SoA mode.

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Key Provisions for SoA Transfers

1. Applicability:

   • Transfer facility available across all mutual fund schemes except ETFs.
   • Partial transfers are allowed, but if residual units fall below the scheme's minimum threshold, they will be redeemed automatically.

2. Restrictions & Safeguards:

   • Redemption of transferred units is restricted for 10 days post-transfer to mitigate fraud risk.
   • Transfer requests on a record date will attribute dividend payouts/reinvestments to the transferor.

3. Phased Rollout:

   • The facility initially targets three categories of individual unitholders:
     • Surviving joint holders adding new joint holders after a co-holder's demise.
     • Nominees transferring units to legal heirs post-transmission in their name.
     • Minors turning major, adding joint holders like parents, siblings, or spouses.

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Eligibility & Pre-requisites

1. Transferor Requirements:

   • Units must be free of liens, freezes, or lock-in periods.
   • The transferor must complete transmission or minor-to-major updates as required.

2. Transferee Requirements:

   • Must have a valid folio (or create a zero-balance folio), be KYC-compliant, and provide PAN, valid bank account details, email, and mobile number.

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Mode of Transfer

• Online-Only Facility:

  • Available exclusively via RTA and MF Central portals.
  • Physical, stock exchange, or other third-party platform-based transfer requests will not be entertained.

• Key Benefits of Online-Only Mode:

  • Instantaneous locking of units to prevent duplicate transfers.
  • Real-time validation of transferor and transferee folios for compliance.
  • Automated stamp duty calculation and online collection.

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Stamp Duty Payment

• Responsibility: Transferor to bear stamp duty charges.
• Calculation Basis: Based on the last available NAV at the time of the transfer request.

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Process Workflow

1. Initiation: Transferor logs into the RTA/MF Central portal and selects the folio and units to be transferred.
2. Validation: System checks for KYC compliance, lien-free status, and eligibility of both transferor and transferee.
3. Approval: Dual OTP authentication ensures secure transfer authorization.
4. Stamp Duty Payment: Transferor pays stamp duty online before processing the transfer.
5. Execution: RTAs process the transfer within 2 working days, issue updated SoAs to both parties, and report the transaction for tax purposes.

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Implementation Timeline

• RTAs and AMCs must implement the system within 3 months, i.e., by November 14, 2024.

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Conclusion

The new guidelines aim to make SoA transfers secure, transparent, and efficient while reducing risks associated with manual processes.