Governance: Information for Mutual Fund Investors

A number of investors in India are invested into Mutual Funds, sold on the promise of being able to get better returns from the equity market without having to worry about direct investment into the equity market. A number of these investors do not have adequate information about the working of the Mutual Fund industry and depend on the Mutual Fund to keep their best interests in mind; something that unfortunately does not happen as much as you would like. For example, a number of Mutual Funds are pushed through investing agents, and since the commission to these agents is much higher for a New Fund Offer, they try and get new investors to put money into these New Fund Offers. SEBI has a FAQ (Frequently Asked Questions) section on their website that deals with Mutual Funds. You can access this site here. Some relevant information from this website:
1. When will the investor get certificate or statement of account after investing in a mutual fund?
Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document.

2. What is an assured return scheme?
Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme.A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year.
3. Can a mutual fund change the asset allocation while deploying funds of investors?
Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.
4. Can a mutual fund change the nature of the scheme from the one specified in the offer document?
Yes.However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme from close-ended to open-ended scheme and in case of change in sponsor. The mutual funds are required to inform about any material changes to their unitholders.
5. Is there any difference between issue of a mutual fund and an initial public offering (IPO) of a company?
Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed.
6. How can I redress my complaints?
You would find the name of contact person, in the offer document of the mutual fund scheme, whom you may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. You can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved.

In addition, given that you have invested your hard-earned money, you should do more research into the Mutual Fund industry. For this purpose, you can read information at these links:

1. ICICIDirect Mutual Funds (Learn & Search)
2. ValueResearchOnline.com (Learn & Search)
3. Sify Mutual Fund Page
4. MyIris.com (Learn & Search)

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