Investing in Mutual Fund through Power of Attorney

An investor will prefer to invest in mutual fund through a power of attorney under some special situations. Let us see a few examples of those special situations:

• When you are a frequent traveler,
• When you are not well,
• When you want your investments to be managed by your spouse or a well-wisher,
• When you become an NRI.

So, what is POA in mutual fund?

POA full form in mutual fund is Power of Attorney.

It allows someone else to manage and operate your mutual fund investments on your behalf.

Giving Power of Attorney

You need to give power of attorney only to a right person. It is generally not advisable for an investor to give

POA to his mutual fund agent. In many situations, the mutual fund agents have used this POA to their advantage.

So you need to be extra cautious about selecting the right person to give POA.

Giving power of attorney is a crucial decision. Choose someone trustworthy like a spouse or close family member.

You can give restricted POA. That is, you can specify that the POA holder can only transact in mutual fund and not in any other assets.

Some of the older format of POA will not have the signature of the POA acceptor.

It will carry only the signature of the POA giver. This format of POA without the signature of POA acceptor is not accepted by mutual fund companies.

Mutual Fund companies expect the POA to be signed by both the POA giver and acceptor. So when you are preparing a POA make sure that it has both the signatures of the giver and acceptor.

The power of attorney process should be detailed, notarized, and must include signatures of both parties.

Some investors give power of attorney for investments to their spouse or trusted person to make timely decisions.

It is not mandatory that POA needs to be registered. Mutual fund companies accept even the unregistered POA.

Remember, the power of mutual fund operations through POA depends on the AMC’s acceptance of your POA format.

KYC for both

To transact in mutual fund through a Power of Attorney, both the investor as well as the power of attorney holder should have completed KYC.

KYC for power of attorney holder on behalf of an investor is mandatory and must be submitted with PAN and address proof.

Both the investor and the attorney need to complete KYC POA verification with the KRA.

KYC power of attorney documents must be attached with the POA form and mutual fund application.

When Opening a new MF folio

Investor can register the POA, when opening a fresh mutual fund folio.

You need to write the name of the POA holder in the specified column on the application form.

Also you need to mention the PAN number of POA holder.

KYC of the POA holder needs to be attached. Notarised copy of the POA also needs to be enclosed with the application.

Though this folio is opened by the investor, as the POA is registered, subsequent transactions can be done by the POA holder as well as the investor.

When registering POA, an investor has the right to specify up to investment folios for which the attorney can operate.

POA holder can open a fresh mutual fund folio on behalf of the POA giver.

Same set of the above mentioned documents need to be attached and the same details as mentioned above need to be filled in the application form.

POA holder can sign in the column specified for Applicant signature.

Below the signature, clearly indicate that the signature is on behalf of the applicant by the Constituted Attorney.

The power of attorney holder must clearly state their authority when signing on behalf of the investor.

Some AMCs may restrict features; for example, SIP investments are currently disabled for POA-N account holders.

Registering POA in an existing MF folio

The investor can register the POA in his existing mutual fund folio by giving separate letter.

In the letter he can mention the details of POA holder and request to register the POA in the folio.

Pan card copy, KYC copy of the POA holder along with the notarized POA need to be submitted.

Once this POA registration is accepted in the folio, the POA holder can start transacting on behalf of the investor.

If you don’t register POA properly, you may face transaction issues.

For example, all MF SIP orders are disabled for non-POA customers.

Cancelling POA in a Mutual Fund Folio

By giving a letter to the respective mutual fund company to cancel the POA registered earlier, an investor can easily cancel the POA.

Both the POA registration and cancellation will be reflected on the account statement as a non-financial transaction.

At times, the investor may cancel the power of attorney, but will not intimate that with the mutual fund.

In that case, mutual fund will allow the POA holder to transact on behalf of the investor.

So if you are cancelling the POA, then immediately inform that with a letter to the mutual fund companies.

A final note

Investors are advised to give POA to their spouse to transact on behalf of them in mutual funds.

This comes in handy when you are sick are need to travel all of a sudden. During emergency and contingency, POA to the spouse will be of immense help.

POA investment arrangements provide great convenience for mutual fund operations in the investor’s absence.

A well-structured power of attorney for investments can serve as a contingency plan during emergencies.

Power Attorney helps you in smooth execution of your investment decision. Financial Plan helps you in taking right investment decisions.

If you want to test drive our financial planning process, which helped many of my clients to plan and achieve their financial dreams, then I firmly vouch for you to take advantage of our free one – on – one consultation with our Certified Financial Planners.