'Dormant' statements spook MF investors

Advisors scoff at industry practice of marking accounts with no activity for 6 months as 'dormant'

On June 18, Renuka Devi, an investor based in Thane, said the following in an email to her agent, “ 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.”

She added “As I feel if the account lies dormant it may be moved to Investor's Protection Fund.”

Mutual fund agents across the country have been receiving similar requests following the recent decision by the authorities to mark accounts which have not seen activity in the preceding six months as “dormant”.

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 once 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, classifying them 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.