Don't fall victim to false promises on mutual funds

Mutual fund investors keep on getting phone calls to invest in new fund offers. These calls promise hefty returns for investors. And some investors fall for the bait and end up investing in these NFOs and end up losing substantial part of their investment.

Despite the strictness of market regulator SEBI, misselling in mutual funds is still rampant. In this game, mutual fund distributors, financial advisors, and in some cases, wealth management companies are also involved. This is why many investors end up bearing losses.

In the world of investment, cases like misselling, fraud, and scams are nothing new. Such cases have been going on for a long time. However, with the increasing use of technology over time, the modus opeandi is changing. How can you be deceived in mutual fund investment? Let’s find out.

Some brokers advise you to switch from one fund scheme to another for better returns. During this process, they do not disclose that brokerage charges are also applicable. Many times, they switch the scheme on your behalf by logging into your account. The investor thinks that it must have been done for his benefit.

If you are a mutual fund investor, monitor your investment regularly. Check your account statement periodically. If someone has advised you to switch schemes,  ask for a valid reason. Understand how much fee and tax will be payable.

Many times, brokers or other intermediaries update the investors email or mobile number in forms of mutual fund folios. They can change bank details for fund withdrawals.

To avoid all this, fill out your investment form yourself. If a broker has filled out the form, read it carefully before signing it. To avoid fraud, provide PAN, Aadhaar, bank account, and portfolio details only to authorised personnel. Do not share your login ID, password, and OTP with anyone.

Moneyfront co-founder Mohit Gang says that the current tradition of increasing NFO sales in the distributor channel is not right. Improvement is needed here. Investors should be informed that applying for every new theme of mutual funds is not right for their portfolio’s health.

If a distributor makes continuous changes to your portfolio or advises you after 1-2 years of poor performance to shift from one scheme to another, if he promises  more interest in schemes with new fund offers, then be cautious.

Also, make sure not to evaluate the performance of any scheme in the short term. Do not make changes to the portfolio under pressure from anyone.

Before investing, read all the offer documents related to the scheme in detail. There may also be some risks associated with the scheme.

Inquire from the AMC, distributor, and financial advisor. Understand the scheme in detail, where will the scheme’s money be invested?  What are the risks involved, etc

If an AMC or distributor promises guaranteed returns, then you are being deceived. If you are being sold mutual funds through lying, then be cautious.

You can file a complaint against the AMC and distributor on SEBI’s ‘SCORES’ platform. SEBI resolves complaints online on SCORES. Complaints can also be made to SEBI or the industry organization AMFI.