MFs don’t lose sleep even as US compliance deadline looms
Non-compliance with Fatca will not affect existing investments and incremental inflows
Only 10 days remain for compliance with a US law, but the mutual fund (MF) industry does not look perturbed.
Despite a large number of MF investors yet to submit selfdeclarations in line with a US law with global implications called Foreign Account Tax Compliance Act (Fatca), MF executives say no one is panicking.
Industry players say noncompliance with Fatca will not affect existing investments and incremental flows through systematic investment plans (SIPs).
However, after April 30, MFs won't allow non-compliant customers to make lumpsum purchases (as opposed to SIPs). Also, cash-out requests will need compliance.
Fatca needs financial firms including mutual funds, banks, and insurance companies across the globe to disclose details of their customers' income and to reveal whether their clients have US tax residency. India and the US have signed an agreement on selfcertification on US tax residency.
As of now, there are no data to suggest how many investors are currently non-compliant with Fatca in the mutual fund industry. Sector officials put it around 30 per cent and term it "quite significant."
Dhirendra Kumar, chief executive (CEO) of fund-tracking firm Value Research, says, "There will not be much impact of Fatca declarations on the mutual fund sector. It is nothing but an unnecessary hurdle of additional paperwork. At times of redemptions, investors would have to provide a self-certification to get their money."
Mutual fund sector has been quite active in getting customers Fatca-compliant. Over the last two years, new investors were made Fatca-compliant on signup. However, most of those who have been investing for quite long will have to self-certifify.
CAMS and Karvy, the two dominant registrars and agents in the mutual fund sector, have made the process available online. Investors just have to key in their Pan (permanent account number) to get a one-time password to fill in details, after which they will be Fatca-compliant. The whole process takes a few seconds. Sources say there are nearly 15-17 million mutual fund investors in India. But, given that an investor may have more than one mutual fund account, the number of folio counts is in excess of 50 million.