Systemic Roadblocks
I have often argued that India has rushed in to adopt several technology-intensive online systems that are shutting out large sections of the population who are not tech-savvy or do not have access to infrastructure available in urban centres. Even for those who can use online systems, the experience is often very frustrating.

Our cover story this time outlines the problems unleashed by e-filing of tax returns. Similarly, the capital market has been transformed by automation but the retail investor population has shrunk. Unfortunately, successive chairmen of the Securities and Exchange Board of India (SEBI) have been too busy pushing the automation agenda to bother about those who can’t keep up. The five-year bull-run and the gush of foreign investment allowed them to do so.

This issue of MoneyLIFE has two letters exemplifying the travails of retail investors wanting to access the capital market. The first is about the mindless application of Know Your Customer (KYC) rules often frustrating the opening of demat or trading accounts. Gopinath Prabhu, who runs a brokerage firm in a small town near Mangalore, says his friend’s demat application was rejected because he could not produce proof of residence as the house was in his father’s name. Prabhu asks a common sense question: if the submission of a PAN is now mandatory and the PAN card states the father’s name with the same address as in the application, why shouldn’t the telephone bill in his father’s name be an acceptable proof? After all, India has a joint family system.

Ironically, the same telephone bill allowed the friend to open a bank account in the same town and, as Prabhu suggested to him, the bank account allowed him to obtain a demat account. In effect, he found his own solution to the mindless, bureaucratic obstacle. But can’t the process be made less frustrating? We have written to SEBI and will wait for an answer.

Similarly, investor participation in the primary and secondary market is hampered for want of market infrastructure. Vijay Samant has written several letters to SEBI pointing to the fact that several initial public offerings didn’t have a single bidding centre or a banker to the issue in the entire state of Goa. Investors determined to apply had to send their applications to Mumbai, wait for refunds and fork out hefty bank charges for outstation cheques.

Prabhu also writes about how it took 15 days to clear a cheque of Rs2,000 from his client, from which the bank deducted Rs80 as collection charges. That both these cases pertain to prosperous states of India, with strong investment ethos, reflects the poor reach of the domestic market infrastructure.

Then there are cases like the one mentioned by Nagappan V of the Madras Stock Exchange (see Letters to the Editor), where a retired military officer is frustrated by the callous treatment meted out to small investors by large brokerage franchisees. In one of our earliest issues of MoneyLIFE, I had written about another retired brigadier, who was about to be cheated by his broker (but was saved by our intervention), when he tried to encash some long-term holdings to raise money for his wife’s medical treatment. In that case, a broker of the Mangalore Stock Exchange was masquerading as a member of the Bombay Stock Exchange where he operated as a sub-broker. In this case, even caveat emptor (buyer beware) would not have helped in the absence of a centralised, exchange-wise broker list being available to investors. We took up this issue with the regulator a couple of years ago but nothing has changed.

Instead, brokers caught in wrongdoing can now get away by filing consent terms and paying a paltry fine without admitting or denying guilt. The practice is borrowed from the Securities Exchange Commission of the US, but unlike it, SEBI’s website provides no details of the charges against the brokerage firm, leaving an investor clueless about the gravity of their misdemeanours. Indian investors can only hope that when foreign investment interest begins to flag, our policy-makers will pay attention to domestic investors’ needs

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal @yahoo.com

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Ted Seides is a principal at Protégé Partners, a money management firm in New York. Some time...

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SCUP: The Unanswered Questions
Acouple of weeks ago, the Dainik Hindustan carried my article on the termination of UTI Mutual Fund’s (UTIMF) Senior Citizens Unit Plan (SCUP). I was shocked to receive over a dozen letters from readers across the country saying that they did not know about the termination of the scheme which had raised Rs254 crore from around 17,800 investors. In fact, its marketing pitch was to bring “sunshine” in the autumn years of their lives with an assured-returns scheme that also offered a comprehensive insurance cover in collaboration with New India Assurance.

Meanwhile, UTIMF’s Asset Management Company (AMC) is planning a public issue to raise Rs2,000 crore and get listed on the stock exchanges. Its pre-IPO advertising campaign claims that it was UTI which taught ordinary Indians the language of the stock market. It is another matter that most investors credit Dhirubhai Ambani with introducing them to the share bazaar while the erstwhile Unit Trust of India was seen more as a government-guaranteed fixed-income scheme offering tax benefits and steady returns.

In any case, investors attracted by the IPO campaign need to understand that UTIMF is a different entity – with no government guarantees and only half its former size. Further, an AMC earns only a percentage of the corpus it raises under different mutual fund schemes. Its income is unrelated to the performance of its schemes. This means that even in a bull market, its income can decline if it fails to attract investors. That is why AMCs, in general, attract a price of just under 5% of their assets under management (AUM) or total corpus when they are sold.

Let’s get back to SCUP, which was marketed under the slogan: “Makes your old age worry free, once and for all” but was summarily terminated. Nita Kulkarni of Jalgaon is among those who ask, ‘what do I do now’? So let me answer some of the questions raised by readers and offer possible solutions. First, SCUP was terminated at the close of business on 18th February at the prevailing NAV of Rs23.22 per unit “after deduction of premium amounts”. A public notice appeared in Business Standard and letters were sent to individual unit-holders. Clearly, many investors have not received the letter and are unaware that their money is simply lying in UTIMF’s coffers without earning interest. They need to hurry and claim redemption by submitting their unit certificates. UTIMF does not say how many investors have not claimed redemption proceeds so far. However, its investor department is working proactively to help investors to complete redemption formalities, switch to other schemes or understand options.

Remember, UTIMF is categorical that unit-holders are not entitled to any interest, costs or compensation after February. So, the first thing to do is move swiftly to collect your money by submitting the duly signed original membership certificate. If you plan to reinvest the money in another UTIMF scheme, please fill the option form that is available.

Subodh Mittal, who is 65, wants to know if he will still benefit from SCUP. Well, everybody above 58 will continue to get hospitalisation insurance cover because of an agreement with an insurance company. Some unit-holders have chosen a ‘Floater Medical Policy’, available for a brief period at a specially negotiated rate.

S Prakash is one of those investors who have heard nothing about the termination of SCUP. Others like him must write to UTIMF immediately and those who have not received their money after submitting their certificate can write to me with their certificate and folio number and I will forward it to the UTIMF investor cell. Better still, they can write directly to UTIMF or contact its toll-free helpline at 1800 22 1230, or SMS it at 5676756 or email it to [email protected] Dainik Hindustan reader Rajiv Gupta of Agra, for instance, asks whether UTIMF’s action amounts to a breach of contract. Well, some investors in Pune, led by investment advisor Stephen D’souza, think so and plan to file a case. Those interested can contact him at [email protected] and join the litigation.

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at suchetadalal @yahoo.com

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