MFs try out 'mystery shoppers' to keep lid on mis-selling

Mystery shoppers are representatives of fund houses who pose as ordinary investors while dealing with mutual fund distributors

To check mis-selling of mutual funds and ensure compliance with norms, fund houses have begun using 'mystery shoppers' to catch errant agents and also to get feedback from investors.

Mystery shoppers are typically representatives of fund houses who pose as ordinary investors while dealing with mutual fund distributors.

Executives at various mutual funds said 'mystery shopping' method can be an effective way to check mis-selling, which has always been a major concern for the industry.

However, the system can succeed only if it is done by independent entities and their analysis needs to be taken seriously.

"The 'mystery shoppers' method can give some kind of essence. It can help in providing you what is happening on the ground. We at Reliance Mutual Fund are already using this technique to get feedback from investors," Reliance Capital Asset Management CEO Sundeep Sikka said.

Sikka, who is also Chairman of the industry body AMFI (Association of Mutual Funds in India), said different fund houses are using different techniques in these areas.



Quantum Mutual Fund CEO Jimmy Patel too said: "Mystery shoppers can be used to reduce mis-selling in mutual funds... It can become successful provided that these are done by independent entities and we take their result very seriously."

Mis-selling mainly occurs on account of AUM (Assets Under Management) race where quantity gets predominance over quality. This is also one of the reasons why retail investors generally fight shy of investing in mutual funds, Patel said.

Explaining the benefits of the method, Baroda Pioneer AMC COO and CFO Kiran Deshpande said: "Mystery shoppers can help detect whether the recommended funds are appropriately sold to a particular investor."

"The distributor/manufacturer will not only get more watchful over their sales practices and processes, but will continuously invest in building capabilities and skills to address the needs of different investors as suited to their risk appetite," he added.

Regulator Sebi has defined mis-selling as sale of units of a mutual fund scheme by any person, directly or indirectly, by making a false or misleading statement, concealing or omitting material facts of the scheme, hiding risk factors and not taking reasonable care to ensure suitability of the scheme to the buyer.