As a rule under Anti-Money Laundering (AML) norms, mutual funds reject third-party payments. Which of the following situations is a recognized, permitted EXCEPTION where third-party payments are accepted?

[ A ]Payment made by an anonymous neighbor using an unverified bearer cheque of Rs. 5,00,000.

[ B ]Payment by a stockbroker from their own firm pool account on behalf of an unverified client.

[ C ]Payment by parents/related persons on behalf of a minor (not exceeding Rs. 50,000 per purchase/SIP) with a completed Third-Party Declaration and KYC compliance.[ CORRECT ]

[ D ]Payment made by a mutual fund distributor from their personal savings to meet monthly sales quotas.

Takeaway

Option C is correct: Payment by parents/related persons on behalf of a minor (not exceeding Rs. 50,000 per purchase/SIP) with a completed Third-Party Declaration and KYC compliance.

Derivation

Third-party payments (where the paying bank account does not include the first holder) are prohibited, subject to four narrow exceptions: (1) Parents/related persons investing on behalf of a minor as a gift up to Rs. 50,000 per transaction/SIP instalment, (2) Employer making payments for employees via payroll deductions, (3) Custodian on behalf of FPIs, and (4) Asset reconstruction / judicial payments. In all permitted cases, the payer must be KYC compliant and submit a Third-Party Declaration Form. This tests AML rules. A common error is assuming third-party cheques are allowed for large amounts without declarations.

Why the others fail

A — Payment made by an anonymous neighbor using an unverified bearer cheque of Rs. 5,00,000.

Unverified anonymous third-party payments violate Anti-Money Laundering laws and are strictly rejected by mutual funds.

B — Payment by a stockbroker from their own firm pool account on behalf of an unverified client.

SEBI has completely banned pool accounts; broker pool cheques are strictly disallowed for mutual fund subscriptions.

D — Payment made by a mutual fund distributor from their personal savings to meet monthly sales quotas.

Distributors funding client investments from personal accounts violates AMFI codes of conduct and third-party AML regulations.