Redeeming your mutual fund? Get the signature right

With stock markets near their all-time highs, several investors have been looking forward to cashing in on their tax-saving mutual fund investments made in 2004-2006. But some investors who tried redeeming units have faced rejection of their redemption requests.

“Looking at the market, I sent out a redemption form for my tax-saving mutual fund that was made in 2006-07. I got back a letter saying ‘Your signature is not matching and hence, we cannot process the redemption’,” a Mumbai-based mutual fund investor told DNA.

It is not this individual alone. Several distributors have confirmed that their clients who put in redemption forms have got similar letters.

Paul D’Souza, who runs Cuzinns Investment Services, said, “There have been three-four of cases with my customers where the redemption requests were rejected. One of them is an investment made in 2006. The reason being cited is that there is a signature mismatch.”

“Some asset management companies (AMCs) are not telling investors the reason for rejecting. They are asking customers to get the signature attested by the bank,” D’Souza added.

Another mutual fund distributor — Rajendra Dhulla, a financial planner who runs advisory firm Pratham Services, said: “There have been 7 cases last week, where redemption requests were rejected as the signature didn’t match.”

Though the numbers are small, even these occurrences were earlier rare, say distributors.

“It is not a major or substantial part of the total redemptions. It is around 1-2%. But in the past, we have never seen even this small percentage of cases in redemptions happening. Most of them are in September 2010. I have had 6 customers whose redemption requests got rejected and they were asked to go to the bank and get the signature attested,” says a financial advisor who requested anonymity.

“In one case, the investor was a minor and two guardians had signed on his behalf. So the request was rejected. Upon prodding, we found that the problem was because the guardians had signed at the wrong place. One of them should have signed as the first applicant, but the two guardians had instead signed as second and third applicant,” the advisor added.

When we questioned AMCs about the issue, they said there were not too many cases of rejection due to signature.

“Signatures change over a period of time. It is our fiduciary responsibility to make sure it is matched because we have seen mind-boggling frauds happening in the financial services industry.

We need to be guarded or somebody can take us to court,” said a mutual fund official, explaining the reason for the rejection.

Asked how they distinguish and determine whether the signature is not matching, the official said, “Handwriting is a science. There are strokes and the flow that you look at.”

But actually, it is the mutual fund registrars who determine whether the signatures are matching or not, as they store the data and the application forms.

A senior official at one of the two mutual fund registrars told DNA Money, “There is no significant increase in terms of rejection of number of redemption requests. Largely, signatures match. But in case of an old-time investor, there is a possibility that the signature has changed. We reject only if the strokes are drastically different.”

Some cases are surprising. Dhulla, of Pratham Services, recounted this case of investments made in 2004-05: “In September, we sent two redemption requests by a single investor to the same asset management firm. One request got through the other did not. Coincidently, the markets went up after that day, but it could have been the other way round.”

When DNA Money asked an MF registrar about this case, the official responded, “The specific case has to be analysed, but that may be either because people use regular signatures or short signatures. You may have entered into one scheme with a regular signature and another scheme after two months with a short signature. If you redeem after six months, signatures in both master applications may not match and hence, the signature submitted at the time of redemption may not match.”

Getting a bank attestation of the signature is the only way out. “The compliance is difficult after the signature mismatch. One needs to get a bank verification and PAN card. The bank verification of signature is costly. Banks charge as much as Rs 100 per signature attestation. For each request they will ask for Rs 100, so if you have four requests, then you have to pay Rs 400 just for signature attestation. Some AMCs also ask for the bank official’s name and employee code to be mentioned on the signature attestation. But banks are hesitant to give it,” said Dhulla.

The problem with rejection is that the investor does not get the net asset value (NAV) of the day he put in the redemption request. And the NAV on the day the bank attestation comes in may be lower or higher, depending on the market’s movement.

“There should be a facility to lock in the day’s NAV when the investor put in the redemption request. In case of signature mismatch, MFs should ask the customer to get the verification letter and then process the redemption,” suggested Dhulla.

The registrar official said this is not feasible. “I may submit a request today, and if it is rejected by the system, at the time the intimation comes in I may choose to hold it back. I may not submit the redemption request later it all. It can be either way.”

So when sending in a redemption request for your mutual fund, make sure you sign the way you had in the original application form. That way, you can capitalise on the market rally at the right time.