Mutual Fund mis-selling: Time to act tough

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Mutual Fund mis-selling: Time to act tough
Till recently, the calls against Mutual Funds mis-selling were getting louder. Investors didn't know where to go after the products they purchased turned to be unconvincing. The problem has persisted for several years when the products were sold based on wrong information by the company's executive. There were reports that some of the selling was deliberately done to increase the volumes and meet the sales targets set by the companies. In certain cases, the product was not well understood by the mutual fund executive himself and he recommended it to the clients based on limited knowledge.
Regulator acts tough

Increase in such discrepancies and lack of transparency has forced the regulator to act tough in all these cases. Securities and Exchange Board of India (SEBI) has asked the Association of Mutual Funds in India (AMFI) to work on a system where the employees can be identified. In this regards, AMFI has asked the banks and organizations officials involved in Mutual Fund selling to provide their customers with identification numbers. This will be known as Employee Unique Identification Number (EUIN). Until now, the complaint procedure was marred by the fact that it was difficult to locate the exact executive who sold the wrong product. Sometimes he had left the organization and at other times, he had taken transfer to some other location.

How will this system work?

It is like giving proper training and authentication of the employee before they are actually given the duties of selling a product. The employees involved in the MF industry and those planning to sell products will now have to pass an examination of National Institute of Securities Market (NISM), this will generate the EUIN for them after they clear the exam. They will then register with AMFI. The time given for MF companies was 1 June 2013.
They had to choose the employees before that time to sell their products. This move is expected to create a database for the selling professionals. It will act as a check for the number of products sold and also the recommendations given by the executive. Earlier, the companies were selling the products without any proper measures like training of the employee, his qualifications and registration under AMFI, but with new regulations all the executives will be under one roof.

Self regulation

Self regulation and assessment is expected to increase by both companies and employees. The employee will think twice before selling the product with ambiguous tactics. The score of the person will now be assessed by the regulator on a regular basis. The companies will, on the other hand, try and give information to the employees and work on their techniques for client satisfaction.

The move by SEBI and AMFI suggests that everything was not hunky-dory in the Mutual Fund industry. Fishy selling was going on in the markets and the sufferers were the general investors. After the rules, it is expected to curb the instinct of mis-selling and deceiving the client as that will result in affecting his report card and in turn might lead to ban of the employee from sales. The companies can be slapped heavy penalties in case the problem aggravates.

About the Author:

Amit Sethi is an MBA (Fin) graduate and a Financial Consultant. He has spent over 10 years in Equity research, Stock broking and Financial Consultancy Sector. He can be reached at

Read more about: mutual funds
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