Non-ownership of customer verification papers by fund houses continues to pose a hurdle for investors looking to change their mutual fund agents long after the Securities and Exchange Board of India (Sebi) allowed one to take on a new agent without having to obtain a no-objection certificate (NOC) from the old.
Take this Mumbai resident who works with a foreign airline. The 32-year-old man wanted to switch to a local mutual fund agent from a foreign bank, which had sold him the mutual fund scheme.
“I never got any service from the bank,” he complains. The investor went with a change-of-broker request to the HDFC Mutual Fund branch close to his house.
Surprisingly, he was asked to apply again as the fund was unable to process the request. HDFC MF asked him to submit a “covering letter from the channel requesting movement from offline to online trading mode…indicating the folio number and scheme(s) involved.”
Apart from an attested copy of the PAN card and the application form, the man was also asked to submit signature attestation from the existing channel (or his original broker, here the foreign bank).
Did someone say something about following the norm in letter and not in spirit?
Sebi had in December 2009 scrapped the rule of getting an NOC from the old broker to shift to a new one.The rule posed a hurdle for investors considering the old broker/distributor would never give an NOC.
The regulator also asked fund houses to acquire all know-your customer (KYC) papers from brokers and national MF distributors by mid-December 2009.
“We have tie-ups with few brokers who transact through the electronic mode. As a result the signature and other details of an investor lie with the distributor. How can we verify the signature, when we don’t have the details? Hence we ask the investors to get their signatures verified from the broker,” an official at the fund house reasoned, when probed by DNA Money on the practice.
“It is pretty disturbing. It feels like sending a goat to the slaughterhouse, to get permission that he wants be slaughtered,” says Paul D’Souza, who runs an MF advisory under Cuzinns Investment Services and is advising the investor mentioned above.
Many more such investors who have been investing in mutual funds through the electronic channel will face trouble as the KYC papers remain with the brokers/distributors and not with the fund houses.
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