Amfi suspends MF distributor for misuse of investor money

The Association of Mutual funds of India (Amfi) has suspended Shree Investments, a Vijayawada-based distributor, for allegedly misusing investor money. According to the industry association’s website, this distributor has been suspended from doing the mutual fund business from May 19.

This suspension means the agent won't be entitled to any commission on past investments. All pending payments also will be withheld. Shree Investments was empanelled with many mutual fund houses. According to sources, the case came to light after an investor discovered that Shree has switched money out of his scheme into the scheme of a third party. He later withdrew the sum from the third party's account. When confronted, the distributor agreed to make good the losses. He also confessed his actions in a letter to the investor.

The suspension came after Amfi got the letter in which the agent confessed to one of the investors and agreed to make good the losses. “The agent had allegedly used the switch facility offered by mutual funds to commit the fraud. If the charges are proved, his registration could be terminated,” a person familiar with the development said. Being a remote centre, the agent had given his own address as the address of investors. Thus, he was controlling all communication to investors. This also facilitated the fraud, according to the person.

Last year, Amfi had restricted the use of third-party cheques as an agent based in Hyderabad used these to defraud investors. While the modus operandi has changed, frauds continue to haunt investors as distributors remain an unregulated entity, say industry watchers.