Dormant mutual fund statements confuse investors

Mutual fund accounts become dormant if no transactions are done for six months

June 20, 2012 5:14 IST | India Infoline News Service
According to media reports, several mutual fund investors across the country are asking their agents and advisors to close their accounts after they see the word ‘dormant’ on their statements. These investors are also threatened by some smart agents who say that the word ‘dormant’ on their statements indicates that the account is no longer active and prompt investors that it is better to redeem their funds.

“The banking sector norms—which mention that an individual savings account is required to be re-activated if his bank account is classified dormant—has added to the confusion,” the reports added. 

Mutual fund accounts become dormant if no transactions are done for six months. Some smart agents use the opportunity to churn funds. Portfolio churning had become a serious issue, with a section of distributors advising investors to churn funds frequently just to earn more commission.

According to para 14.3.4 of the master circular for mutual funds titled ‘dormant account holders’, “Mutual Funds shall also provide Statement of Accounts to those unit holders who have not transacted during the last six months prior to the date of generation of the Statement of Accounts. In such cases, the Statement of Accounts may be issued along with the scheme’s Portfolio Statement or Annual Report and should reflect the last closing balance and value of the units prior to the date of generation of the Statement of Accounts.”

Distributors say this classification practically brings in most mutual fund investors under the dormant category. Most investors get confused when they see the word ‘dormant’ on their statement. They think that their account is closed.

According to Pankaaj Maalde, head-financial planning, ApnaPaisa.com, “Investors don’t need to get worried after looking at the word ‘dormant’ in their mutual fund account statements. Dormant just means that no transaction has happened in the account for six months.”

He elaborates, “Though the statement mentions the word ‘dormant’, investors can be rest assured as everything in the investors’ mutual fund accounts such as units, fund and risk remains the same. It is advisable to review your funds at least once every year.”

Distributors have written to the industry body Association of Mutual Funds of India (AMFI) and market regulator SEBI (Securities and Exchange Board of India) to avoid using the dormant word.

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