FAQ on new Third Party Cheque Rule in mutual funds

third party cheque in mutual fundsAs per AMFI best practice guidelines, investments made through third party cheques will not be processed with effect from 15th November, 2010. A cheque issued by and signed by any other person other than the First holder of the investment is a third party cheque.

Below is a list of frequently asked questions to guide you further.

Q I would like to invest in Mutual Funds? Can I pay through my friends’ / relatives’
accounts while applying for MF schemes?
A. No. As an investor, you must provide the funds from your Bank account. If you don’t have a bank account, then you must open one and provide the funds from the account, through a cheque drawn on your own Bank Account.

Q. I wish to invest in my minor child’s name. He doesn’t have a Bank account. Can I issue my cheque for such an investment? Is this exempted from the regulation?
A. Yes, there are exceptions to the regulation for certain special cases. These are listed below:

• Payment may be made by Parents/Grand-Parents/related persons on behalf of a minor in consideration of natural love and affection or as gift for a value not exceeding Rs.50,000/- (each regular purchase or per SIP installment).
• Payment may be made by Employers on behalf of employees under Systematic Investment Plans through Payroll deductions will be exempted.
• Payments can be made by Custodians on behalf of FIIs or clients.

However, such applications will be considered only if accompanied by:

1. A declaration mentioning the relationship with the First Holder. (These declarations are expected to be part of the Application Form issued by Mutual Funds. Please refer the Mutual fund websites for the necessary guidance / forms.)
2. PAN copy and KYC Acknowledgement, of the person or entity who is making payment on behalf of the investor. These documents should be attached with the application form.

Q. Can I provide a cheque leaf through another bank account which also belongs to me, but different from the one mentioned in the Bank Mandate column of the application?
A. Investors may provide a cheque from a different bank which belongs to them. However, the cheque leaf should have the investor name printed therein. If the cheque leaf does not have the name printed, investors should submit a copy of the Bank Statement, attested by the Bank Manager as evidence for holding the account. For the benefit of Investors, RTAs have the provision to register multiple bank mandates in each folio. We encourage Investors to register multiple bank mandates, if you have more than one bank account. This will ensure that your subscription will not get rejected under the ground of third party cheque.

Q. What if I gave a cheque leaf from my relative’s bank account and it was accepted by the CAMS Service Centre staff or by the AMC staff?
A. All such instances will be reported to the AMC for initiating the refund process / return of documents.

Q. Can I make the payment through a Demand Draft / Pay-order / Banker’s Cheque?
A. Such applications will be accepted if the DD/PO/BC instrument is accompanied with a Certificate from the Issuing banker stating the Account Holder’s name and the Account Number which has been debited for issue of the instrument. The Account Holder’s name mentioned in the Certificate should be that of the First Holder. If the said certificate from the Issuing Banker is not attached, the referred application will be treated as ‘Not In Good Order’ [NIGO] and will not be processed.


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  1. Can a husband make payment from his bank account for subscription to units in mutual fund units for his wife?

  2. Why not stop Life Insurance Companies third party Cheque.?
    This move is part of efforts to check fraudulent activities by mutual fund agents and distributors, some of whom have been found to be collecting cheques from investors and depositing them for investments in their own names.this is so many possibilities in Life Insurance Companies also, so why not same rule immediate effect for Insurance Companies.?

    • Many life insurance companies have started this process complying fully KYC. They want name to be printed on cheque. If not, photocopy of passbook is required. Hopefully, in coming days, we’ll see complete KYC implementation.

      Till then, the customers while submitting cheque to life insurance company, must write their name, application no., contact no. at the back of cheque. Always get the receipt & confirm the same from customer care department.


      • Plz note that KYC complying Process is difference matter and Bank Details Registration like Premium Paying particular same bank cheque, Money back refund and maturity payment by same bank Accounts.
        If Bank details registerd with Policy records fraudulent activities by agents stops, some of whom have been found to be collecting cheques from Policy holders and depositing them for investments in their own names.
        Same rule why not aplicable for Mutual Fund AMC and Insurance Companies emmediate effective….?

        • I got your point now and I fully agree with you. What I’ve realized that in Indian financial sector, SEBI & AMFI are more professional rather than IRDA. Look at the kind of products – ULIP, Endownment plans, they’ve approved. That’s why SEBI wanted to take control on IRDA. That battle is still on. Let’s hope SEBI new chairman will do something in this side also.

          Till then, customers need to aware themselves with basic knowledge. Like, don’t sign blank application forms and cheques, always follow-up with customer care centre department. All the companies provide toll-free numbers now-a-days.


          • Rural area’s customer are not aware with basic knowledge like your reply but also urban people are not aware about this things. Many fraudulent activities are carried out after the rules are strictly followed by regulators………..
            Let’s hope SEBI new chairman will do something in this side also.

          • I remember one such instance. In one of village in Delhi, some insurance agent went to get bulk business as the farmers had sold their lands at good price. The insurance agent pitched them money back plan for 10 years on single premium. But on application form, he mentioned regular premium. He collected an average application size of Rs.10 lacs. Total collection was in crores of rupees. All those policies got lapsed in 2nd year and all the farmers lost their money. Such innocent farmers could not do anything as by that time agent left that company.