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Gullible Investors or Gullible Agents?

That Indian mutual funds (MF) are not supposed to ask for a no-objection certificate (NOC) from us if and when we change our broker and transfer our existing MF investments to a new broker, is a fact that is not well known. Although I have written on this in the magazine that I work for, more than once, (read here and here), many of us aren't aware of it. And MFs and agents are only too happy to exploit this.

A couple of days back, I had called for my stock broker, who is also an MF distributor. Since they offer online MF buying and selling, I wish to open an online MF account with them and thereafter transfer all my existing MF investments to them. I already have a direct equity account with them; an offline mode though presently, wherein a broker executes trades on my behalf. To this, now I want my MFs. This will enable me to get a consolidated statement, one that will give me a summary (as well as details) of all my equity and MF holdings.

Much to my surprise, my relationship manager told me that I would need an NOC from my old agents. He obviously did not know who I was (I don't mean to say this in the immature VIP-culture fashion amply seen these days at airports;) ) and which publication I write for and the stand that our publication holds in this regard. I reminded him that I am quite aware of my rights as a MF investor and that an NOC is not really required, but falsely demanded to make agent-changing a time-consuming affair. I do not know whether I have convinced him or not, but I intend to go pursue this matter to its logical end. I shall keep you posted on how smooth or otherwise my transfer is going to be.

The problem, as I often highlighted, is that when the Association of Mutual Funds of India (Amfi) says anything, it is not legally binding on MFs. Amfi is a trade body. It is not a regulator. For it to become a law, the Securities and Exchange Board of India (Sebi) needs to pass the order. And with Sebi recently asking MFs whether or not they are demanding NOCs in this regard and reasons if they are, shows that the market regulator is serious. Probably for the first time in my nine years of journalism career am I observing Sebi monitoring the Indian mutual funds (MF) industry this closely. It's been pretty quick in passing orders to ensure that the end-investor gets serviced adequately.

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