11 June, 2010

Investors - Served or harassed ?

“The more they change, the more they remain the same”, remarked a client of mine, who was irritated that his sell transaction was rejected because it was done online through a broker. I was able to understand his irritation. This client had done the transaction through HSBC. He was not aware that it was done online. When he wanted to cash out and we sent a manual transaction slip, it was rejected. The reason given was that the AMC has no way of verifying the genuineness of the transaction, as they do not have signatures or other details with them. So much for investor friendliness!
There are several issues which are faced by investors. Let us look at them –
Online trades cannot be done offline, ever! This is amazing. A client comes with the idea of investing in Mutual Fund schemes. He is not particularly taken up by online or offline. When he wants to do a transaction, he has to come running to the online broker. Reminds me of a travelogue… In Kashmir a tourist goes to a garment shop. The salesman asks the lady for her ring and passes a fine muslin cloth through it, much to her amazement… and then tosses it gently somewhat beyond her reach. Now, she is a captive. Whenever she tries to reach across, he unfurls a new silk or brocade. Even if she is not interested, she has to give him time. Something like what this client felt… like being chained to his previous online distributor. And what happens if the online portal shuts shop? Why does the AMC not take the information collected by the online broker to ensure smooth transaction processing, in whichever mode.
If you want to change the bank details… In case an investor is cashing out and want the cheque to come in with a different bank detail than what was updated, there could be issues if you are dealing with HDFC AMC & Reliance MF. In all other AMCs, they just want a copy of the cancelled cheque and all pertinent details filled out in the transaction slip itself. HDFC AMC has a separate form. They want the previous account original cheque leaf with name of the holder printed or a passbook certified by the bank manager or a letter from the bank. They want the same compliance for the new account as well. Asking for a cheque leaf of a new account is fine. How do you expect a client who has invested several years back and may have closed the account, to have original cheque leaves or have passbooks or expect a manager to issue a letter, several years after an account is closed? What if the client does not have a cheque book or a passbook? He needs to run to his bank and beg them to verify the records and issue him a letter? When we called up they talked about some fraud that happened due to which they have introduced this for “Investor Protection”! It looked like it was for their protection.
NOC required for change of broker A client is investing his money. If he is not served properly ( or for any other reason ) if he wants to change the broker, most AMCs are asking for a No Objection Certificate (NOC ) from the previous broker! A letter from the client himself stating that he wants to go to a new broker, is not good enough! Imagine… client signature is good for investment, redemption, switch … everything, but he cannot switch his broker! Who is being served here?
Cheque to be issued by the investor only… Not even the spouse can issue the cheque for investment in an MF scheme. This we found with Deutsche MF. Insurance companies are accepting spouses cheque & even cash upto a certain limit ( usually Rs.50,000/- ), for long-term contracts, spanning decades. And yet for just an investment, only the investor’s signature is accepted! Thankfully, it is only one fund house ( we have found ) that insists on this.
Individual Mutual Funds are like kingdoms and they seem to have their own set of rules. If investors are not aware of the peculiar quirks of various fund houses, he will keep filling forms & letters and running to banks & doing other stuff, for several moons. SEBI keeps talking about investor protection. Just removing the entry loads and creating a direct route is not protection. The mistake is, it is always thinking about the charges. Compliance in MFs is as it is, pretty stringent for the investor – PAN Card, KYC, only cheque transactions etc. Investors mostly do not have problems with the charges, if things happen smoothly.
Why does SEBI not talk of ensuring a smooth, investor friendly process which all AMCs have to comply? Why not have a standard form, transaction slips & a standard code which all AMCs need to follow? Investors are overwhelmed by the blizzard of paper ( in the name of compliance ) that comes to them & are underwhelmed when it comes to hassle free services. SEBI needs to act on these and others, if it wants to ensure good quality of services to investors.

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