Just like you can have a zero-balance account in a bank, you can also have a zero-balance folio in a mutual fund. To be sure, a zero-balance savings bank account means that you can open a bank account where you don’t need to keep a minimum sum. While most bank accounts require you to put some minimum balance in it, like Rs.5,000 or so (if you hold less than that, you are charged a penalty), a zero-balance bank account can be left completely empty for days and months.
What is it?
Some fund houses—especially those that are serviced by Computer Age Management Services Ltd (one of India’s largest registrar and transfer agents or R&T) and Sundaram BNP Paribas Fund Services (one of the newest R&Ts)—offer this facility. Here, you can open a folio, without putting—or committing to put—any money at that time. You can then put money in it in the future, after say a month or two. Typically, as Sundaram BNP Paribas Fund Services tells us, the zero-balance feature is in perpetuity. In simple words, you can take as long as you want to put money after you open a zero-balance folio.
What is its purpose?
These days, whenever a fund house launches a new fund, its new fund offer (NFO) period is open only for a period of 15 days. This could be too short a time frame for many new investors, who haven’t yet completed their know-your-customer (KYC) facilities, and for the fund house to get all the formalities processed.
For a fund house that wishes to mobilize many such investors, handling their KYC request forms, processing their application forms and so on can take up a lot of its time; the 15-day period might, therefore, be too narrow. That’s why some fund houses encourage opening a zero-balance folio to start things. This way, rough edges get ironed out; if the KYC is not done yet, it gets done, the potential investor becomes a legitimate one and a folio is opened in her name. Some fund houses have been known to use this method when they are about to launch a NFO and make advance presentations explaining its salient features to a potential group of investors, say employees of a large company.
Zero-balance folios are also opened by investors who wish to start a systematic investment plan. Once they open such a folio, they can then begin investing one or two months down the line.
How do you open it?
There is a separate form to fill to open a zero-balance folio. You can submit it either to your fund house’s office or centre or simply give it to any of its R&T agent’s office. Then, when you finally decide to invest your money, you need to fill in the application form with minimal details as your folio would already have been active by then.