At last, AMFI ups the ante against mutual fund mis-selling
Ravi Samalad 08 April 2010

The industry body has issued warning notices to HSBC, NJ India Invest, HDFC Bank and Kotak Mahindra Bank for not complying with NOC norms and luring investors to change distributors to garner trail commission

The Association of Mutual Funds in India (AMFI) has finally woken up to the messy game of assets under management (AUM) transfer and rampant mis-selling of mutual funds by banks and national distributors.

The industry body has sent warning notices to HDFC Bank, HSBC Bank, Kotak Mahindra Bank and NJ India Invest to stop this practice, reports CNBC TV18. AMFI has also sent a stern signal that if they don’t comply with the guidelines, AMFI will consider withdrawing their licenses.

Interestingly, Moneylife had first reported this practice on 2 February 2009. Post the implementation of the trail commission norms, AUM transfer by unethical means was gaining traction, and distributors and investors were being duped into signing dubious letters. (See here and here).

In the first article, we had identified HDFC Bank and NJ India Invest as among those distributors who were indulging in this practice. Now AMFI has acted against these two entities. AMFI is also in the process of issuing notices to other such entities.

Ironically, according to some smaller distributors, KN Vaidyanathan, executive director, SEBI, had addressed a gathering of distributors at the Bombay Stock Exchange (BSE) earlier this year where he had said that they should follow the practices of NJ India Invest and openly lauded the “ethical services” provided by NJ India Invest.

According to sources, NJ India Invest has a dedicated team for encouraging switchover of assets. In some cases involving national distributors, investors are duped into signing letters which eventually leads to a change of distributor, without the knowledge of the investor. The ban on no-objection certificates (NOCs) was supposed to ease investor woes while changing a distributor, but some players continued to demand an NOC from investors.

The entry of bank distributors in the MF distribution game is unlikely to end mis-selling of MFs. (See here). Recently, the State Bank of India has trained 18,000 employees to sell MFs through its banking channel. After SEBI allowed MF units to be traded through the exchanges in December 2009, brokerage houses have started providing free demat accounts to earn trail commission. Sources reveal that while converting physical MFs into demat forms, investors are made to sign a change of distributor. (Read here).

A Pune based certified financial planner K V Balaji  recounts his experience with ICICIdirect: “I have received an SMS from ICICIdirect, offering a 'free service of converting offline mutual fund investments to online investments'. On calling the number, the person spoke about ICICIdirect offering a free service. When I asked how will ICICIdirect garner any revenue from this 'free' service, he didn’t talk of the trail. Instead, he stated that ICICIdirect would manage yearly maintenance fee of Rs500 per account holder from its demat accounts.”

However ICICIdirect denied having any such scheme which provides a free or even a discounted demat account based on mutual fund conversion.

Our email queries sent to HDFC Bank, Kotak Mahindra Bank, NJ India Invest and ICICIdirect remained unanswered till the time of publishing this piece.

Comments
A Trivedi
1 decade ago
There is no effective deterrent against misselling. Self regulation never works. There is no remedy for the investor who has in reality been duped by an 'advisor' working for a bank. These advisors are under pressure to generate revenue or lose their job.
Who compensates the investor for loss of hard earned money? Is there a step beyond these chat forums?
Sanghit Mallick
1 decade ago
ref recent mf scam, the license of 4 co's should have been cancelled, some person still praising some co.what is the vested interest in it? it's a "brastaachar"-- why u r gulfing the poison? if it is so, then further more is yet u r inviting. will it be healthy for the financial sociey.Think it again.,because I'm very strong,but u r not.
amarish shah
1 decade ago
miss sellling is one part and the second one is the field force of these
cos and corporate were collecting the
applications from the investors for changing th broker.
i am also the victim of the same.
this should be immideatly removed by the govt authorities.
J
1 decade ago
AMFI SHOULD HAVE BEEN 'ASSN. OF MUTUAL FUND INVESTORS'!INSTEAD, IT REPRESENTS THE GREEDY AMCs AT THE COST OF MILLIONS OF INVESTORS!

IT DOES NOT EVEN BOTHER ABOUT ANY ISUEADDRESSED TO THEJ



dillip swain
1 decade ago
Mainly mis-selling created by all new generation banks, like AXIS.ING,ICICI ,CITY etc. Now psu starts mis-selling.mainly sbi is leading for selling sbi mf. In sbi & other psu, some staffs are promoted from class iv. amfi should take close action rural areas,tier iii/iv/v & vi cities. In cuttack city (undivided),orissa axis,ing,icici,hdfc & sbi leading role on misselling of L.I. & M/Fs,
Santhana
1 decade ago
Yours is a lone voice in the great riff raff of the Phoren banks against IFAs. Why Citi is not mentioned in your report. What does Mr Vaidyanathan know to praise NJ Invest or it reveals something we do not know? SEBI and AMFI have killed the spirit of the IFAs and now they are lamenting the fall of SIPs and collections. Great
Ashit Kothi
1 decade ago
One thing which every one understands as early as possible ie there is nothing like free in this world -"THERE ARE NO FREE LUNCHES"
pandharinth Prabhu
1 decade ago
Kudos to k.N.Vaidyanathan who did not know what is rotten below the carpet. Please do not praise anybody u do not know hwo is doing what?i
Tapas Chakraborty
1 decade ago
such and many other unethical practices are rampantly being followed by the banks who are charging huge commissions (without proper disclosure) and also are getting high compensation from the AMC's under various dubious heads. It would be very nice if we can build a platform were we can report / discuss such malpractices and remedy them
A K Shah
1 decade ago
Just pre-planned notice to rich and wealthy hdfc nj hsbc kotak and punishment to poor small ifa.
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