The Mutual Funds investing is increasing day by day but question is are Mutual Fund Safe? Many investor take a backhand thinking that this sector is not regulated. Well, this is a misconception as I being an insider can tell you that it is one of the most regulated & audited industry. Many landmark decisions have made this industry more friendly and fair. The main thing is investor has choices & rights.

An investor can take action against any deficiency in service. So let’s revisit these milestone changes. One should also know his rights & safety standards of MF industry.

MF industry is supervised by capital market regulator SEBI. In its SEBI (Mutual Fund Regulation) Act, 1996, it carefully dictates the guidelines for mutual funds in India.

The regulations start from initiating the MF business. For an organization to start a mutual fund business, requires the approval of SEBI. Thus there is quality and credibility check on everyone who enters the mutual fund business.

Are Mutual Fund Safe?

There have been some milestone changes led by SEBI & AMFI (Association of Mutual Fund in India) which have improved the experience and strengthen the MFs working. Some of these rules are:

Abolition of entry load

Making mutual fund investing cost effective. However, when launched the mutual fund houses felt a contrarian impact. This was primarily due to the abolition of the commission oriented sales culture. Many distributors too abandoned the selling of mutual funds and started focusing on the distribution of insurance products or other fixed deposit products which earned them a higher commission for every sale. Now after so many years not only the MF business has flourished, many distributors also feel this was a good move.

Introduction of Direct Plans

MFs had a simple one-way selling mechanism, that the product passed through a middleman and whether investor wants services of a distributor or not (or is getting or not), he had no choice. This means he pays for unwanted or the service he is not getting. The SEBI introduced direct plans where the cost is low as no middleman is allowed. The investor can go directly or he may choose an advisor or implementer of his own and pay him directly. The direct segment has gained strength that now around 50% of the industry as corporate money has gone in direct NAV plans to a large extent. For retail investors, they have a flexibility to choose the kind of advisor they want and how to remunerate them.

Disclosure of commission

SEBI also stepped in to provide mutual fund investors transparency, by making distributors disclose commissions (upfront and trail) to the investor. This enabled investors to judge the quality of advice and the service provided by the distributor, and accordingly, pay the distributor for the advice and service rendered. Investors get the details of the commission that other distributor is earning through them. If your distributor is not giving you a correct figure, the same is disclosed in quarterly statement known as CAS (consolidated account statement) and is issued by NSDL. This is to declare that distributors are following transparency in disclosing the correct expenses for the funds advised by them.

Licensing a new segment – SEBI Registered Investment Advisors

With the start of direct plans , investor has the option to go directly or choose to go through middleman who works for commission. The middleman is an agent of MFs and not investor and he may be biased towards his revenue paymaster. So investor if going through direct also needs advisory services. So they can approach SEBI Registered Advisors who work for fees only. Simply you pay the fees and get unbiased advice. Many of these RIAs offer advisory, financial planning, wealth management services giving you a comprehensive SEBI was good enough to bring this culture and accepting this new channel.

NOC to change existing distributor/agent

SEBI allowed mutual fund investors to change their mutual fund distributors without obtaining a No Objection Certificate (NOC) from their earlier distributor, thus facilitating investors to shift their distributor without any hassle. This means you can port your investments without exiting and getting a written approval from previous distributor. Your money your choice.

Few more important rulings that changed the face of MF business in India

• SEBI ordered mutual funds not to disclose the indicative portfolio or indicative yield of their newly launched Fixed Maturity Plans (FMPs) since this was pro-actively used as a tool to mis-sell the product to the investors. Many times big investors when had surplus approached MFs to bring out FMP for their benefit. This has been prohibited
• Service Standards & TATs – The AMFI in consultation with MFs has laid rules regarding NAV applicability, cut-off times and other service related procedures like time-stamping of transactions etc. the uniformity ensures that no MF company favors any chunk of investors and everyone gets equal treatment.

Rights: The investor has many rights like-

• In case of dividend declaration, investors have a right to receive the dividend within 30 days of declaration. In case the investor fails to claim the redemption proceeds immediately, then the applicable NAV depends upon when the investor claims the redemption proceeds.
• On redemption request by investors, the AMC must dispatch the redemption proceeds within 10 working days of the request. In case the AMC fails to do so, it has to pay an interest @ 15%. This rate may change from time to time subject to regulations.
• Investors can obtain relevant information from the trustees and inspect documents like trust deed, investment management agreement, annual reports, offer documents, etc. They must receive audited annual reports within 6 months from the financial year-end.
• Investors can wind up a scheme or even terminate the AMC if unitholders representing 75% of scheme’s assets pass a resolution to that respect.
• Investors have a right to be informed about changes in the fundamental attributes of a scheme. Fundamental attributes include type of scheme, investment objectives and policies and terms of issue.
• Lastly, investors can approach the investor relations officer for grievance redressal. In case the investor does not get an appropriate solution, he can approach the investor grievance cell of SEBI. The investor can also sue the trustees.

Whats New?

MFs industry like a newbie, is changing day by day. Some important new things that have started or about to be launched are:

• Online mutual fund trading platform has been launched by the exchanges (BSE and NSE), making transacting in mutual funds easy and convenient for distributors. The platforms BSE Star MF & NSE MF II have allowed MFs to reach the last mile – the smaller cities. Also, MF companies have come together to make a common platform for transaction call MFU or Mutual Fund Utility.
• Through platforms or by e-commerce platforms like Flipkart & Paytm you may soon be allowed to invest. (A Real Big Billion Sale expected)
• Robo advisors are also making inroads. They are helping many people to invest sitting in their drawing rooms.
• We may soon have a full-time SRO (Self Regulatory Organisation), like IRDA for the insurance. This means more control & powers to the regulators.
• MFs have more than 3600 schemes and many are just look alike in objectives. They were launched to just garner more money in name of Rs 10 IPO/NFO. Issued a circular on 6^th oct 2017 to rationalize & categorized this confused industry. One type-one scheme.
• Combining the licensing procedure. Personal finance consists or MFs, insurance, annuity etc fields. So why to have multiple channels. So a unified license is underway where one person/organization deals with all subjects of personal finance.

Let me stop here and give you a time to actually realize the potential you are looking at. But this thing- the change – is the most important constant for any business.

Brace up for real achey din. Do you think -are Mutual Fund Safe?

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