10.5 Mutual Fund Investors: Who Can Invest

Eligible Investors

Overseas Corporate Bodies (OCBs) are not permitted to invest in Indian mutual funds. This category was derecognised as an investor class and remains excluded — a reliable examination point.

Minors

The rules for minors are precise and generate frequent operational problems.

• The folio is held solely in the minor's name. There can be no joint holder.
• It is operated by a guardian — a natural guardian (father or mother) or a court-appointed guardian.
• Proof of the minor's date of birth is mandatory: birth certificate, passport or school certificate.
• Where the guardian is not a natural guardian, court appointment documentation is required.
• Payment for investment must come from the minor's own account or the guardian's account; third-party payment is not permitted.

On attaining majority

This is the single most examined transition. On the minor's eighteenth birthday:

• The folio is frozen for all transactions until documentation is completed
• Standing instructions such as SIP, STP and SWP cease automatically
• The now-major investor must submit a fresh application with KYC, PAN, bank details in their own name and specimen signature attested as prescribed
• The guardian's operating rights end; the guardian cannot transact after the eighteenth birthday even if documentation is pending

AMCs write to the guardian in advance, but folios are still frozen routinely because the reminder was ignored. A distributor tracking minor folios and prompting the change a month ahead prevents an interrupted SIP and a frustrated client.

Non-Resident Investors

NRIs, Persons of Indian Origin and Overseas Citizens of India may invest, subject to FEMA.

Operational points that matter in practice:

• TDS applies to non-residents on both distributions and capital gains under section 195, so redemption proceeds arrive net of tax — unlike for residents.
• DTAA relief may reduce the rate, but requires a Tax Residency Certificate and Form 10F.
• FATCA and CRS declarations are mandatory, requiring disclosure of tax residency.
• Several AMCs do not accept investments from persons resident in the United States or Canada, because of the compliance burden those jurisdictions impose. This is an AMC-level commercial decision, not a legal prohibition, so it varies between fund houses and a distributor should check rather than assume.

Institutional Investors

Non-individual investors require additional documentation at onboarding:

• Board resolution or authorisation identifying who may transact
• List of authorised signatories with specimen signatures
• Constitutive documents — memorandum and articles, partnership deed, trust deed, bye-laws
• Ultimate Beneficial Owner (UBO) declaration identifying the natural persons behind the entity
• FATCA and CRS declarations

The UBO requirement flows from anti-money-laundering obligations: the framework requires knowing the natural persons who ultimately control an entity, not merely the entity's name.

Joint Holding

Up to three holders may be recorded on a folio, with a stated mode of operation:

The first holder is the one whose PAN, tax position and bank account govern the folio — all tax consequences attach to the first holder regardless of who contributed the money.

A practical caution worth giving: choosing Joint mode means every redemption, every bank change and every nomination requires all signatures, which becomes difficult if a holder is abroad or unwell. Anyone or Survivor is operationally far easier and is the appropriate default for most families.

Who Cannot Invest

• Overseas Corporate Bodies
• Persons in jurisdictions where the offering would be unlawful, as stated in the scheme documents
• Investors whose KYC is on hold or incomplete, until it is regularised
• Entities barred by SEBI or other regulators from accessing the securities market