On Monday, Renuka Devi, an investor based in Thane, asked her agent to close her mutual fund account and refund her money. In an email to her agent, Devi said, “As I have received a statement from (the) mutual fund mentioning my investment as “dormant account”, I request you to kindly send me the Redemption Slip of ICICI Pru - Discovery (G) 1317864/31 to withdraw the money. As I feel if the account lies dormant, it may be moved to the Investor's Protection Fund,” she added.
Devi is not alone. Confused by the D-word and threatened by some “smart agents,” several investors like Devi across the country are mobbing agents and advisors with similar requests, say distributors. The banking sector rules, under which customers are required to “reactivate” if a savings bank account is classified “dormant or inoperative,” and have added to the panic.
According to para 14.3.4 of the master circular for mutual funds titled ‘dormant account holders’, “mutual funds shall also provide statement of accounts to those unitholders who have not transacted during the last six months prior to the generation of the statement of accounts.”
- MF investors receive statements saying account "dormant"
- Accounts with no transactions for 6 months classified dormant
- Most investor accounts fall in this category; only SIPs active every month
- Some smart agents use the opportunity to churn
- Amfi says problem exists, will be rectified soon
Distributors say this classification practically brings in most fund investors under the dormant category. For example, even an investment in a closed-ended capital protection fund with a tenure of three years, where no activity is possible after the investor buys the units during a new fund offer, is classified as dormant. Similar is the case with investments in Equity linked Savings Schemes (ELSS).
ELSS, by definition, are locked in for three years and classifying these as dormant defies logic, say distributors. Only investors in systematic investment plans (SIP), where there are regular monthly investments have escaped this classification.
“The dormant account statement is creating a big problem. Investors are getting confused as they are being misguided by some insurance agents that if "Dormant" is mentioned then that money will be transferred to Investor Protection Fund without intimating them,” said Ramesh Bhat, CEO, Aniram Advisors.
Bhat, who is also the chief of IFA Galaxy, an association of investment advisors, added that “Most of the advisors say that their clients approach them with these “Dormant Account Statement” and request them to redeem this amount irrespective of the advisor guiding that this is only an intimation about their holding in Mutual Fund without any transaction for the past six months.”
Distributors have written to both the Association of Mutual Funds of India (AMFI), the industry body of fund houses and the market regulator to avoid using the D-word.
In email to distributors, V Ramesh, Deputy CEO, AMFI said, “We have received information about the misunderstandings surrounding the term “Dormant Account”. Considering the same, we will be making some changes in the way it is communicated from the next CAS that will be sent to the investors where transactions have not been effected.”
Fund managers say Sebi has not mandated the use of the D-word, therefore it can be changed. “They should use the word ‘inactive’. If even this sounds negative, the statement should just say no transactions in this account for the last six months. Either way, this just seems to be a matter of words, I am sure it will be sorted out,” said a CEO of a private sector mutual fund.