Mutual Funds Seek Confirmation from Investors: Ensuring Transparency in Joint Accounts

March 4, 2024 Mutual Fund

As many individuals invest in mutual funds (MFs) for their long-term financial goals. But have you ever checked who else might be associated with your MF holding, especially if it’s a joint account?

Recently, mutual funds have been reaching out to investors like you to verify if their financial advisors (Mutual Fund Distributors) are listed as the second or third holder in joint mutual fund folio. This might sound confusing, so let’s break it down and understand what’s happening.

What is a Joint Mutual Fund Folio?

A joint mutual fund folio means two or more individuals, like spouses or siblings, hold the mutual fund units together. This allows them to invest jointly and share ownership and benefits proportionally. It as similar as any joint bank account that you may have.

Why are Mutual Funds are Seeking Confirmation about MFDs?

SEBI the market regulator, reportedly found a few instances where MFDs have put their name as the second and third holder in the joint mutual fund folios without the knowledge or consent of investors.

As a result, SEBI has asked fund houses through AMFI to seek confirmation from unitholders where they find MFDs’ name as the second or the third holder in joint MF folios. This step aims to ensure transparency and protect investors’ interests.

Why Might an MFD be Listed in My Joint Folio?

There are a few possible explanations for an MFD appearing as the second or third holder in your joint folio:

• Facilitation During Account Opening: Sometimes, MFDs might be temporarily listed as second or third holders during the account opening process to facilitate paperwork and KYC (Know Your Customer) verifications. However, this doesn’t grant them any ownership rights or access to your funds.
• Investment on Behalf of Others: If someone invested in your joint folio through an MFD, they might have been listed as the second or third holder for convenience during the transaction.
• Error During Account Creation: In rare cases, there could be an error during account creation, unintentionally listing the MFD as a holder.

[Read: How to Go About Transmission of Mutual Fund Units In the Event of Death]

In order to determine if the distributor’s name was added with the knowledge or approval of the first holder or other joint holders, AMFI has released a declaration form requesting confirmation.

While this operation is presently taking place in a few folios, SEBI has instructed RTAs to identify all folios in which MFDs are the second or third holder in joint mutual fund folios and forward the list to AMCs for validation and investor consent.

Investors with such folios (including MFD as joint holder) received letters from certain fund houses asking them to provide declarations within 15 days. The fund house did, however, state that they will take the MFD’s name out of the joint MF holding if they do not hear from these investors.

[Read: How SEBI Consultation Paper on Nomination Benefits Investors]

What Should You Do as an Investor?

If you receive a communication from your mutual fund asking about MFDs in your joint folio:

• Review your account statement, carefully examine your latest MF account statement and check if any MFD is listed as the second or third holder.
• Verify with your joint holders, discuss this information with your co-owners in the joint folio and confirm their understanding of the situation.
• Respond to the mutual fund, fill out the confirmation form or reply to the communication sent by the mutual fund, clarifying whether the MFD presence is legitimate or a mistake.

[Read: Investing In Mutual Funds on Behalf of a Minor Child? Checkout What AMFI Norms Specify]

What If There’s an Error?

If you discover an error or an MFD’s presence you are not comfortable with, contact your mutual fund or the MFD directly to have it rectified. This might involve submitting a correction request form or following specific procedures outlined by the fund house.

Important Reminders:

• Don’t share your investment login credentials, for your mutual fund accounts with anyone, including MFDs.
• Make a habit of reviewing your mutual fund statements periodically to stay informed about your investments and identify any discrepancies.
• If you have any doubts or questions regarding your mutual fund holding or this confirmation process, don’t hesitate to reach out to your mutual fund or a financial advisor.

Remember, taking ownership of your investments and staying informed is crucial. By cooperating with this confirmation process, you contribute to maintaining transparency and protecting your mutual fund investments.

This article first appeared on PersonalFN here