Know your rights and duties as an MF investor

Every mutual fund investor enjoys certain rights under Sebi’s laws and rules and fund houses are bound to extend those rights to their investors. Some fund houses, which are investor focused, however, extend services which are more than what their regulatory obligations. Here are some of those rights that mutual fund investors currently enjoy.

As a potential investor in a mutual fund scheme, you are allowed to go through all the details about the scheme that you intend to invest in. You have the right to get a set of documents which include scheme information document (SID) and statement of additional information (SAI). These two together forms the offer document for the scheme you intend to invest in. The fund house should also provide you key information document (KIM), a set of documents containing some important information about the scheme and also the fund house. In case there are any changes to the scheme you have invested in, the fund house should inform you about such changes.

You could invest in a mutual fund scheme directly or through an authorized distributor. In case your investment is through a mutual fund distributor, you have the right to know the fees, commissions etc that the fund house is paying to the distributor who is getting you to invest in the scheme. Rules also allow you to know how much the distributor makes through fees, commissions etc if he/she sells a competing scheme to you. This information can give you some idea if the distributor is pushing you a scheme that will give him/her a higher remuneration than a competing product. If you find that your distributor is getting the highest commission by selling the scheme in which you intend to invest, in that case you should probe a little more about the suitability of the scheme that you intend to invest in. You also have a right to seek professional help, from a financial planner or advisor, in such situations. After you have invested in a scheme through a distributor, he/she should keep you updated, on a regular basis, about the scheme, market conditions, the investing climate etc. which could make the investing experience better.

You should get an SMS/email alert from your fund house within five working days after each investment, even SIPs. You can also get a monthly update for all the transactions done during that particular month from Association of Mutual Funds in India (AMFI), the fund industry trade body. Named consolidated account statement (CAS), this file would contain the details of all transactions, across all schemes from across all the fund houses through which you have invested. For CAS, income tax PAN is the sole identifier. You can register your email ID to get eCAS. Even if you don’t transact every month, every six months you will get a CAS with all the details of your mutual fund holdings. As an investor, you should also receive annual reports from all the fund houses you have your investments.

We invest to reap the benefits when we need the money. So, redemption is as important as investment. When you redeem your investments, you should receive your redemption proceeds within 10 working days. If the proceeds are sent after 10 days, you have a right to receive interest at the rate of 15% per annum for the period of delay after the expiry of the 10th working day. The same rule also applies in case of dividend payments from fund houses, but here the duration is of 30 calendar days. You are entitled to receive interest for any delay in payment of dividend after the expiry of the 30-day period.

At times investors may require a summary of dividends received during a financial year. Some fund houses provide mail back services to investors, detailing dividends paid in a portfolio. In case dividend and redemption is not received by an investor, some fund houses provide trackers on their website which help investors to know the status of such payouts.

Some fund houses give the facility to investors where they could give a missed call to a dedicated number and get the full details of their portfolio with that fund house. Some fund houses also allow investors to transact through SMS.

Every fund house has a complaint redressal mechanism to address investor grievances. If you have any complaints, you can approach the designated officer in the fund house. If that is not redressed to your satisfaction, you can approach AMFI, or even Sebi, the regulator.

As the link between investors and mutual fund houses and companies which sell other financial products, financial planners and advisors play a very important role. They are the first point of contact who make investors aware of their rights and duties. Often along with fund houses, they conduct financial literacy seminars for existing as well as prospective investors to make them aware of various issues related to investing, which also include the rights of an investor and also the duties of an investor so that the experience of investing remains smooth hassle free.

“One of the first things that we insist for all our clients is that they should go for the ‘Anyone or survivor’ option for accounts and also opt for nomination,” said Nirav Panchmatia, founder-CEO, AUM Financial Advisors. Such a process ensures that the transition of wealth and investments are smooth in case the main person who is investing incapable to carry of the transaction for any reason.

Updated information in every investor Know Your Customer (KYC) log is also very important. For the last couple of years, Sebi has made KYC compliance much easier and once a KYC data is uploaded with one KYC registration agency, the same is valid for all transactions across all investments regulated by Sebi. Any change in KYC data is also replicated with other KRAs within a few days. “We ensure that all the KYC-related information like name is correctly entered, contact address, mobile number and other information are up to date,” said Panchmatia.

Financial planners and advisors also help investors keep away from schemes which are not registered with Sebi. Often investors fall prey to ponzy schemes. So, make them aware of such schemes and tell them that they should not invest through cash, the investments should be in cheque and should be in the name of an entity registered with Sebi, Panchmatia said.

Financial planners and advisors also tell their clients that they have the right to ask about the fees and commissions that the planners and advisors receive by selling a product to them. This is a Sebi mandate and once this thing is settled, usually the process of advisor investor relationship is smooth, Panchmatia said.

Financial planners and advisors also make their clients aware of how they need to be regular and disciplined in their approach to investing. “We do not encourage short term trading for our clients,” said Rajiv Bose, a Kolkata-based financial advisor. “For our clients, who want to invest in equities, the investment horizon is 5-7 years. And we also insist that they should be regular and disciplined in their approach to investing,” Bose said.

Another very important aspect to good investing is making a Will, said Panchmatia. “Often it is seen that the investments that the main member in the family had made is completely unknown to the other members in the same family. Having a Will helps solve that kind of problems,” Panchmatia said.

Lure of assured high returns in a short period of time often attracts investors to schemes floated by unregulated entities. However, there is a serious lack of transparency in such schemes in terms of information and regulatory adherence.

Market regulator Securities and Exchange Board of India (Sebi) spells out some of the most important advantages of investing in a scheme which is regulated:

2.Mutual funds permit small investment amounts, giving retail investors the advantage of professional fund management

3.Entire money is invested in accordance with the fund’s investment objective, while in most of the unregulated schemes, the agent takes away a substantial part of the investment as commission

4.Commission and other expenses are charged within the permitted expense limits

5.The portfolio usually has high liquidity and asset diversification, an important attribute for financial products

6.Money is used to buy assets as per investment objective of the scheme and the portfolio is then disclosed to the investors on a monthly basis on mutual funds websites

7.Mutual funds follow a three-tier structure: Sponsor, Trustee, Asset Management Company which ensures a system of checks and balances

8.MFs are under independent trustees and have custodians for their assets, thus ensuring that the assets are ring-fenced from unauthorized use

9.Change in viability position of the AMC does not per se impact the interest of mutual fund unit holders, as the assets of every mutual fund is separately held in a Trust

10.There is proof of flow of investors’ money

11.Value of mutual fund scheme units (Net Asset Value) is computed on daily basis (marked to market)

12.Offer documents provide details of the scheme assisting to understand risk involved, enabling investors to take informed investment decisions

13.Norms exist to ensure that redemption amount/dividend is paid back to investors within a stipulated timelines, and if not, amount has to be returned along with interest

 14.To make asset managers responsible, they are also required to invest certain amount of their own money in the scheme

 15.Mis-selling of mutual fund schemes is a punishable offence