Buying, selling and switching

Once an investor is on board, the day-to-day service is really four moves. A fresh purchase is the first investment in a scheme; it opens a folio and needs the full application. After that, an additional purchase into the same folio is far lighter, just a transaction slip with the folio number and the money. A redemption sells units back to the scheme at the applicable NAV minus any exit load, and the exam’s favourite detail is that units go out on a First-In-First-Out (FIFO) basis, the oldest units are sold first, which decides the exit load and the capital-gains tax on that redemption. A switch simply pairs a redemption in one scheme with a purchase into another scheme of the same fund house, treated as one transaction (with loads and tax still in play). One caution: if a redemption pulls the holding below the scheme’s minimum, the whole folio may be closed.

The other half of this lesson is how the money moves, and here the rules are surprisingly specific. Most electronic modes are welcome, net banking, NEFT/RTGS/IMPS, UPI, NACH, along with cheque or demand draft, and SEBI mandates two-factor authentication for both purchases and redemptions. But some routes are blocked. Credit cards are not allowed for buying units at all. E-wallets and cash share a single ₹50,000 umbrella limit per investor, per mutual fund, per year, and e-wallet balances topped up via credit card or cashback cannot be used. Cheques bring their own rules: they must not be post-dated (the one exception being SIPs) and not be stale, older than three months, and third-party cheques are generally refused. None of this is trivia: a rejected payment is a let-down for an investor who trusted the process, so a good distributor gets it right the first time.