Most mutual fund (MF) investors pan India are asking their MF agents & 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also threatened by some smart agents who say that the word ‘dormant’ on their statements indicates that the account is no longer active & prompt investors that it is better to redeem their units.
The Indian banking sector norms, which mention that an individual SB (savings account) is required to be re activated if his/her bank account is classified dormant—has added to the confusion,” the reports added.
MF accounts become dormant if no transactions are done for last 6 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 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 past 6 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/ Annual Report and should reflect the last closing balance & value of the units prior to the date of generation of the Statement of Accounts.
Distributors say this classification practically brings in most MF investors under the dormant category. Many investors get confused when they see the word ‘dormant’ on their statement. They think that their account is closed.
Distributors have written to the industry body Association of Mutual Funds of India (AMFI) & market regulator SEBI (Securities and Exchange Board of India) to avoid using the dormant word.
According to one SEBI official “Investors do not need to get worried after looking at the word ‘dormant’ in their MF account statements. Dormant just means that no transaction has happened in the account for 6 months”
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