Are you a mutual fund investor? Over the past few days, you may have received a message from the fund house, referring to updation of KYC and furnishing additional details required for compliance with FATCA in order to continue investing. The message would have been along these lines;
We write to inform you that due to the recent regulatory changes, Mutual Funds have made submission of FATCA details mandatory at the time of creations of new folios with effect from November 01, 2015 and going ahead it will be made mandatory for all existing investments as well with effect from January 01, 2016.
This basically means is that if the FATCA details are not provided, you will not be able to invest in any new folios from November 01, 2015 and going ahead the same would be applicable for existing folios as well from January 01, 2016.
Taking the same into consideration we request you to submit the required details at the earliest by clicking on the following link failing which you will not be able to invest in Mutual Funds nor be able to view your existing holdings / investment reports.
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So what is FATCA?
FATCA is the Foreign Account Tax Compliance Act, which was passed in the United States in 2010. It was enacted to prevent residents / tax-residents of the US from using banks and other financial institutions outside the US in order to avoid taxation by the US on income generated from such wealth. According to this Act, financial institutions in many countries are required to disclose details about their clients’ income, and whether they are residents / tax-residents of the US.
Even though all US residents were required to disclose their income outside the US, very few actually did so. Due to this, as per FATCA, the onus of providing details of investors based in the US was put on financial institutions, such as banks, insurance companies and mutual funds worldwide. Non-compliance would mean deduction of withholding tax @ 30% on payments by US organisations to these institutions doing business with / in the US.
Who needs to provide this information?
This applies to mutual fund investors categorised as high value, low value, and other accounts, and depends on when these folios were opened – more details on the RBI site. Even if otherwise fully KYC compliant, investors are still required to provide details needed for FATCA.
The KYC forms have seen many updates over the past 3-4 years and financial intermediaries have been asking their clients to get a re-KYC done since the earlier one was not valid. The KYC form was split in two parts – one with basic details like name, address, Permanent Account Number (PAN), marital status and a supplementary one with additional details like income / net worth, whether you are / are not politically connected, resident of India and so on.
As a mutual fund investor, what must you do?
Previously, these KYC details were stored with the fund. Now, they will be stored with an intermediary and shared across all funds. A couple of these intermediaries are CAMS (Computer Age Management Services Pvt. Ltd.) and Karvy Computershare Pvt. Ltd. In case you still haven’t received any communication or updation link from your fund house, you can visit either of the above sites to complete the requirements. You need to furnish your PAN and / or some more details in order to generate an OTP to your mobile phone. Once that is keyed in, you can enter all other details as needed and your folios will be updated. If your broker / fund house has sent a specific link, you can input these details over there as well.
By when do you have to provide this information?
To ensure compliance with the Prevention of Money Laundering Act, 2002, obtaining details pertaining to FATCA has been made mandatory
– from November 01, 2015 for all new investors,
– from January 01, 2016 for all existing investors
While this primarily applies to new mutual fund accounts opened between July 01, 2014 to August 31, 2015, AMCs are insisting that all account folios should be FATCA compliant, irrespective of when they were opened. Failure to do so will mean you can only redeem your existing mutual fund units and cannot make any fresh purchases.
As per a press release from the Finance Ministry, the last date to ensure your mutual fund account is FATCA compliant has been extended to April 30, 2017. Updating this information takes barely 5 minutes, so hurry up and do so before the FATCA ka fatka gets you! 😛