It acts like a single entity to claim tax benefits under section 80C. Besides Hindus, Jains, Buddhists, and Sikhs, too, can form an HUF. 

Each HUF comprises of a Karta (acting member), coparceners (has right to demand division), and members (wives who can claim maintenance).

As HUF is treated like an individual for tax benefits under income tax law, the question is:

‘How the HUF generates income?’

Income is generated through all forms of investments, except salary. 

The most common forms are:

• Rental income from any immovable property,

• Interest on Fixed deposits,

• Through profits earned in a family business, and

• Investing in mutual funds or equity or debentures.

The Karta takes the investment decision as the acting member of HUF.

In this article we will discuss how an HUF can go about investing in a mutual fund scheme. Below is the guidance to understand the procedure…

First: Complete KYC formalities

The government has appointed the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) to establish a central KYC registry, which simplifies the process of complying with KYC procedures, which is done just once.

The Karta will need to fill in the KYC form under his name in the non-individual category and mention ‘Hindu Undivided Family’ in a bracket besides it, and submit the following prerequisites:

• PAN copy of the HUF

• A bank statement / pass book of the HUF

• Photograph, proof of identity, proof of address, and PAN of Karta

• Provide details of the Ultimate Beneficiary Owner (UBO) details, i.e. Karta’s details

• Submit FATCA (Foreign Account Tax Compliance Act) form as well

• Mentions List of coparceners or deed of declaration of coparceners

Note: All documents should be self-attested by the Karta with HUF stamp, since he operates the HUF solely.

After the entire process is done, a 14-digit identification number termed as KIN (KYC Identification Number) will be sent on the Karta’s email-id after two weeks of verification process.

[Read: 5 Easy Steps to Become KYC Compliant]

Second: Fill in the mutual fund application form and start investing

This process can be done online via the fund house’s website, Registrar & Transfer Agent, Robo-Advisors or other portals such as Mutual Fund Utilities.

[Read: How To Invest In Direct Plans of Mutual Funds Online & Offline]

Note: An HUF cannot assign a nominee for any of their holdings.

Let us look at each platform.

1. Asset Management Company Website:

The Karta can invest directly online through a web portal of the Asset Management Company.

Suppose, you want to invest in a Fund A, log into the fund house’s company website and buy fund units online directly. It is possible for the Karta to invest in multiple schemes of different fund houses individually on behalf of HUF.

[Read: Things to Note When Investing in Mutual Fund]

2. Registrar & Transfer Agent (R&TA) 

The registrars also facilitate online mutual funds investing, however, the investment will be limited to the mutual funds registered with them.

You can either visit the CAMS or Karvy website and invest in schemes available online.

3. Mutual Fund Utilities

A mutual fund transaction portal, MFU (Mutual Fund Utilities), is a single window to transact across mutual fund schemes using a Common Transaction Form (CTF) or through the online portal.

A Common Account Number (CAN), a unique reference number issued by the MFU is created under HUF’s name.

[Read: 7 Benefits Of Creating A CAN]

If the HUF’s CAN reflects under an existing mutual fund investor, then it will map all existing mutual fund folios across fund houses (participating in MFU) to provide a consolidated view.

Below are the few pre-requisites for creating a CAN: 

• A regular KYC compliant (other than EKYC or Aadhaar based KYC)

• HUF should be an existing investor of any/ few of the 27 participating AMCs on the MFU platform (check the list here)

• The details provided for a preferred bank account of HUF while registering, will be the default account for existing mutual fund investments, if any.

Let us look at the three steps to generate HUF’s mutual fund e-CAN.

Step a: Visit - https://www.mfuindia.com/eCANFormFill 

Step b:  Select the CAN criteria i.e. either partially electronic or completely electronic.

Step c:  Select holding type (Single under non-individual) and then enter the holders details for the CAN you create.

[Read: 3 steps to generate mutual fund E-CAN for HUF.]

Hence, investing through MFU is better, because it provides access to all the major mutual funds. Just remember to create an account before transacting. Once the HUF account is set up, the Karta can transact in mutual funds of 27 major AMCs. So far, this is the best transactional portal offered, as it has no additional charges of mutual investment. The entire cost of usage is shared jointly by the participating fund houses.

4.Robo-advisory platforms

Robo-advisors provide portfolio management and financial planning services online, thereby eliminating human intervention. These digital platforms are more cost efficient than human advisors. Most importantly, these are universally accessible for all classes of income (of investors).

[Read: 8 Basics To Be Your Own Financial Planner]

The main advantage of robo-advisor is that it is devoid of human bias, but there could be few limitations to the way information that is sought sans the human intervention.

Due to the advancement of financial technology in the form of a robo-advisor, investment has become convenient. A specialised robo-advisory platform will ensure HUF’s financial well-being through mutual funds—one that proves to be worth more than it costs.

[Read: All You Need To Know About Robo-Investing]

Opt for a genuine robo-advisory platform that is backed by a reputed team and is concerned about the long-term financial well-being of an investor.

[Read: Looking For A Robo-advisor? Here's How To Go About…]

As a Karta you need to be mindful while investing and take calculated risk on behalf of the members of HUF.

If you are a Karta and you want to start earning income for your Hindu undivided family by investing in mutual funds, calculate the returns on lump sum investments using our Mutual Funds Calculator  or SIP Calculator for monthly SIP instalments.

Note that the application received before a cut-off time will be allotted NAV as per SEBI’s regulations and details for this will be sent to the registered email id of the Karta of the HUF. 

To Sum-up…

Diligently invest the HUF’s money in mutual funds. How you invest ––whether offline or online–– the choice is yours. But ensure that you select the best mutual funds for the portfolio. And make it a point to invest in Direct Plan of mutual funds.

[Read: Everything You Need To Know About Direct Plan]

Direct plan of a mutual fund scheme has a lower expense ratio compared a regular plan. You see, the direct plan generates roughly 0.5% to 1.0% additional returns every year.  

[Read: How Even 1% Difference Can Make A Huge Difference To Your Investments]

To ensure that every member of HUF benefit from the investment decision made by you, the Karta, we at PersonalFN are here to help.

PersonalFN, an independent unbiased mutual fund research house, has developed its own mutual fund research methodology. PersonalFN follows a S.M.A.R.T. score matrix:

S – Systems and Processes

M– Market Cycle Performance

A - Asset Management Style

R - Risk-Reward Ratios

T - Performance Track Record

PersonalFN’s stringent scoring model ensures the scheme is tested holistically. 

Personal’s flagship research service, FundSelect has 15+ years of impeccable track record.

Every month, our FundSelect service will provide you with an insightful and practical guidance on equity funds and debt schemes——the ones to buy, hold, or sell——to assist you in creating the ultimate portfolio that has the potential to beat the market.  Subscribe to FundSelect today!

Happy Investing!

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bharat.rajat@gmail.com Apr 10, 2020 Can kyc for HUF be done online?

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