Monday, August 28, 2017

Measures from mutual funds for safety of investors' money

There are certain measures taken by mutual funds to insure safety of investors' money. Some may appear causing inconvenience, but at the core is the objective of protection from possible fraud. Read on ...

Measures for safety of mutual fund investors

The English translation of the article is as under:

Another safety feature in mutual funds
Ramesh had shifted to another location due to change of job. Incidentally, the new job also meant that the salary account changed to another bank. In the hurry of shifting to another location, and that too of one’s choice, Rameshthis person wanted to finish all the tasks at the earliest. One of the tasks was to close to bank accounts. He closed his bank account before shifting to the new location.
On reaching the new location, he needed some funds for buying a house to stay as well as for renovation. He opened his mutual fund account statement and checked the balance. He had more than enough money for the requirement. However, in the mutual fund folio, the old bank account was linked and it carried the old address. Ramesh filled in the details in the redemption slip for withdrawal of required amount of money. In the same form, he also filled in the details for change of bank account and change of address.
Three days later, he checked his bank account to see if the money was credited. He was disappointed that it had yet not happened. He called up the call centre of the fund house only to be informed that it would take longer time. Ramesh was angry and asked for the reason for the delay.
The reason was simple, yet Ramesh could not understand. The fund house kept the redemption on hold since there were three simultaneous transactions, viz., redemption from the fund, change of bank details and change of address.
While someone may consider this as an inconvenience, this was done for the safety of the investor’s funds. Let us understand this statement.
When someone wants to fraudulently take out money from someone else’s mutual fund account, the only way to do so is to change the bank account and address. As a normal procedure, the mutual funds send the funds directly to the investor’s bank account or the payment instrument (DD or a pay order) carries the bank account number of the investors as a safety mechanism. Hence, even if someone copies the signature and files for redemption, one cannot take the money out. The intimation of the redemption would also go to the investor’s registered address. That is why a fraudster must change both these along with the redemption request.
How do the fund houses know whether this is a genuine request or a fraud?
That is why they do not process the requests immediately and often they use other means of verification to ensure the money goes only to the investor’s account. That prevents a fraud from happening against the investor.
It is not an inconvenience, but a safety feature.

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