Registered bank accounts
The bank accounts an investor links to a mutual fund folio for pay-outs — up to 5 for an individual and 10 for a non-individual — with one marked as the default for redemption proceeds.
In plain language
SEBI requires dividend and redemption proceeds to go only to a bank account the investor has actually registered with the RTA — never to a third party, and never to an account nobody has verified belongs to the investor. But an investor is not limited to a single account: the folio can carry several, so long as one of them is marked as the default.
This is the register the RTA checks before a single rupee leaves a scheme for that folio.
How it works
Dividend (IDCW) and redemption payments are payable only to bank accounts registered with the RTA. RTAs must make every effort to credit the amount directly; only where direct credit is not possible are the investor's bank details printed on the payment instrument instead.
An investor can register multiple bank accounts on a folio and nominate one default account into which redemption proceeds are paid unless another registered account is specified for that particular request. The ceiling on how many accounts a folio can carry differs by investor type:
| Investor | Maximum registered bank accounts |
|---|---|
| Individual | 5 |
| Non-individual | 10 |
Investors can add or delete accounts from this list at any time, either through the prescribed change-of-bank-details format or at the time of a redemption request itself. SEBI's turnaround-time table gives the RTA 15 days to process a change to registered bank account details.
A worked example
Mrs Chatterjee, an individual investor, has registered 3 bank accounts with her mutual fund — her salary account as the default, a joint account with her husband, and a savings account she uses only for tax-saving withdrawals.
She can add 2 more before hitting her 5-account ceiling as an individual. If she instead ran a proprietorship and invested through it as a non-individual folio, her ceiling would be 10 accounts, not 5.
When she redeems Rs 80,000 without specifying an account, the proceeds go to her default — the salary account. If she wants the money in the joint account instead, she has to say so on that specific redemption request; the default only applies when the request is silent. A request to add a fourth account, submitted separately, is processed within the SEBI-mandated 15 days.
Why NISM asks about it
Chapter 15 (Non-Financial Transactions), section 15.3, sets the 5-account and 10-account ceilings and the default-account mechanism, right after stating that dividend and redemption payments must go only to a registered account. Table 15.2 gives the 15-day turnaround for a bank-account change. Expect a question on the maximum number of accounts an individual or non-individual investor may register.
Common exam traps
- 5 for an individual, 10 for a non-individual — a frequently swapped pair.
- A default account only applies when a redemption request does not specify a different registered account — it is not the only account proceeds can ever go to.
- Direct credit is the RTA's first preference; printing bank details on a physical instrument is the fallback, not the norm.
- Adding or deleting an account is itself a non-financial transaction with its own 15-day turnaround, separate from the redemption it might accompany.
- An account cannot be used for pay-out unless it is registered — this is the control third-party-payment rules and cooling-period rules both sit on top of.
Check yourself
1.Up to how many bank accounts may an individual investor and a non-individual investor respectively register with a mutual fund?
- a)3 for an individual and 5 for a non-individual
- b)5 for both
- c)Up to 5 for an individual and up to 10 for a non-individual
- d)10 for an individual and 20 for a non-individual
Show the answer
Answer: (c) Up to 5 for an individual and up to 10 for a non-individual
The workbook: "Investors may register multiple bank accounts and indicate the default account into which the redemption proceeds should be paid. An individual investor can register upto 5 bank accounts with a mutual fund and a non-individual investor can register upto 10 bank accounts. They can add and delete from the list of registered bank accounts."
Options A, B and D give figures the workbook does not use. The pair to remember is 5 and 10.
Why registration matters: "As per SEBI regulations, dividend (IDCW) and redemptions are payable only to the investor's bank accounts registered with RTA. RTAs must make effort to directly credit the same to Investors' bank account; if direct credit is not possible, investor bank account details should be printed on the payment instrument."
What a valid change-of-bank request needs: complete details — "bank name, branch name, MICR (where applicable), IFSC code (where applicable), account number and type of account" — with a bank mandate form and either "a cancelled blank cheque leaf or self-attested copy of bank statement/ passbook (not older than 3 months) or bank's letter" certifying the account. "The normal practice is for the AMC to do a test transaction of Re. 1/- to validate the bank details."
Where this is taught
Free preparation for NISM Series II-BRelated terms
- Folio numberThe unique account number a fund house allots to an investor, under which the registrar holds that investor's units across every scheme of the fund, along with the bank mandate, address and signature.
- Non-financial transactionsA request that changes a mutual fund folio's records — address, bank details, nominee, name — without moving any money or touching the NAV, processed by the RTA on its own SEBI-mandated timetable.
- Third-party chequeA payment for a mutual fund investment drawn from a bank account of which the first holder is not an account holder — not acceptable, and the reason registrars run third-party verification on every subscription.
- Two-factor authenticationThe requirement that online mutual fund subscriptions and redemptions be authenticated by two factors, one of them an OTP sent to the email or phone registered with the AMC — signature does the job offline.
- Change of nameThe non-financial request by which an investor updates the name on a mutual fund folio — for marriage, divorce or a corrected spelling — with documents that match the reason and a bank account already updated first.
- MICR codeThe 9-digit Magnetic Ink Character Recognition code printed on the MICR band of a cheque, identifying the bank branch: 3 digits for the city, 3 for the bank and 3 for the branch.
- Mode of operationHow a jointly held investment may be transacted — jointly, or on an either or survivor basis — chosen at application and recorded in the folio along with the order of holders.
- PINS accountThe designated bank account through which an NRI's or PIO's purchases and sales of listed Indian securities must be routed, and through which the bank reports those investments to the RBI.