Rita, a young business consultant, is a frequent traveler, making business trips that keep her out of the country for about 15 days a month. Rita is often unable to make her investments due to paucity of time and unavailability. Eventually, she contacts a financial advisor who suggests that she assign a power of attorney to make investments on her behalf. Rita wants to know more. Here is what the advisor tells her:
About power of attorney (POA)
Some people want to invest but are unable to meet the requirements to make their investments for various reasons such as poor health, frequent travel or emigration. Such investors can use a power of attorney to make their investments.
By signing a power of attorney document, you can assign a person to carry out investments on your behalf. The POA provides that person with the power to sign all investment-related documents on your behalf.
Who should you select?
Since the power of attorney is a document that gives control of your money to someone else, it’s important to choose a person you trust. It’s also important to restrict the power of attorney to only your investments; in other words, the power of attorney must not give the POA holder the power to undertake any transactions other than investments on your behalf. Also, make sure that the POA holder does not have the power to change the names of the nominees to your investments.
Executing the POA
The POA should be signed by both parties – the person assigning the POA and the acceptor of the POA. The POA does not need to be registered with any government agency to become a legal document. However, the POA must be notarized.
KYC – a must
‘Know Your Customer’ (KYC) formalities must be fulfilled by both the POA assignor and acceptor. Note: POA holders are not permitted to apply for KYC compliance on behalf of the POA issuer.
Registering the POA with a mutual fund
You can register a POA for an existing investment or a new investment. For an existing investment, you will submit a letter of request to the mutual fund which should state details of the folio, investor and POA acceptor, among other information, and be accompanied by your permanent account number (PAN) card, KYC copy and that of the POA holder, along with the notarized POA.
While registering a POA for a new mutual fund investment, all these details must be supplied in the application form and the stated documents must be submitted along with the application form.
Direct transaction
Despite issuing a POA, you can also transact directly; that is, you can invest and redeem directly without involving the POA acceptor.
Cancelling a POA
Cancelling a POA is simple. All you do is submit a letter of request to the mutual fund which enumerates details of the POA – folio number, POA acceptor, POA date. Once the mutual fund receives this and registers the cancellation, the account statement will reflect that the POA has been cancelled.
You should use the POA with care and assign your POA to a person you trust. After all, it’s your hard-earned money.
Key Takeaways
- The power of attorney is useful for people who want to invest but are unable to meet the requirements due to poor health, frequent travel or emigration, among other reasons.
- POA is a document that assigns power to a person to carry out investments on your behalf.
- It’s important to choose a person you trust to hold your POA.
- The power of attorney should be restricted to only your investments.
- The POA should be signed by both parties – the person assigning the POA and the acceptor of the POA.
- ‘Know Your Customer’ formalities must be fulfilled by both the POA assignor and acceptor.
- You can register a POA for an existing investment or a new investment.
- Cancelling a POA is simple.
Disclaimer: All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit dspim.com/IEID. This is an investor education & awareness initiative by DSP Mutual Fund.
