Consider a long-term client who maintains a primary savings account for daily expenses, a secondary account for tax-saving investments, and a third account specifically for emergency reserves. When this client approaches you to add all three bank accounts to their mutual fund folio, they are aiming for seamless liquidity management.
As their mutual fund distributor, you must facilitate this by registering these accounts in the folio, which allows the investor to select the destination bank for redemption proceeds on a case-by-case basis. This operational flexibility is vital for investors who prefer keeping their investment-linked bank accounts distinct from their transactional accounts to ensure they do not accidentally deplete their portfolio capital.
Under SEBI and AMFI guidelines, an individual investor is permitted to register up to five bank accounts within a single folio. For non-individual investors, such as companies or trusts, this limit is extended to ten bank accounts. The registration process requires the submission of a Multiple Bank Account Registration Form along with proof for each account, such as an original cancelled cheque or a bank statement not older than three months.
You must ensure that the name of the first holder is pre-printed on these documents to comply with Anti-Money Laundering norms, as generic or handwritten documents often lead to immediate rejection by the Registrar and Transfer Agent.
From a practice management perspective, this setup significantly reduces the friction involved in redemptions. If a client decides to redeem units from a debt fund to cover an urgent expense, they can direct the payout to whichever account holds the necessary liquidity at that moment. This choice not only enhances the client experience but also allows you, the distributor, to provide value by ensuring the infrastructure of their investment is as organized as their portfolio strategy.
While some clients might be tempted by the lower expense ratios of direct plans, the administrative legwork and error-checking you perform during these non-financial transactions demonstrate the tangible, service-oriented value of working with a professional distributor.
Always maintain a log of the default bank account for each client, as the AMC will automatically route all redemption proceeds and dividend payouts to this specific account unless an alternative is explicitly selected at the time of the transaction request. Mastering these backend processes ensures that when a client finally needs to access their capital, the mechanics of the transfer work silently and efficiently in the background.
Nuance
Check Your Understanding
An individual investor with a single folio wants to register their various bank accounts to manage liquidity better. What is the maximum number of bank accounts they can register in this folio as per current regulatory norms?
A corporate client approaches you to update their bank details. They currently have 8 bank accounts registered in their mutual fund folio and wish to add 3 more. How should you advise them?
This is a companion read for Section 9.13 — Non-Financial Transactions in Mutual Funds from Ace the NISM Mutual Fund Distributors Exam by Akhilesh Gururani, available on Amazon Kindle.
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