Are MFs easy to enter and difficult to exit, a la Chakravyuha?

Mutual funds are like the ‘Chakravyuha’, says MS Murthy, retired banker. He elaborates, “Getting into mutual funds (investing) is easy, but getting out (redemption) is very tough.”

He has reason to make that scathing analogy to the battlefield formation/ trap laid in the epic ‘Mahabharatha’.

Murthy, a senior citizen and former managing director of State Bank of Mysore, had to help his son redeem some MF units in Birla Sun Life MF recently. After filling and getting the appropriate redemption form signed and despatched to the registrars (Computer Age Management Services), he duly received an acknowledgement.

But within 24 hours, he got an SMS rejecting the application for redemption on the grounds that the signature did not match with the one in their record. Now, the investment was made 20 years ago and it is quite possible there was some minor difference in signature over that period, concedes Murthy. But, even granting that difference, the rejection was mechanical and without application of human mind and judgment.

As Murthy points out, the bank account into which the dividends are now routinely paid by the MF — is somehow not considered good enough when it is time for redemption!

Besides, the required KYC formalities, and attestations had been submitted on an earlier occasion.

When he took up the issue with the service centre, he was directed to a branch of the registrar some eight kilometres away. The registrar’s branch office wanted his son’s current signature to be attested by the bank. When this was duly done (with the updated bank account number also mentioned consequent to computerisation of bank records), the registrar’s branch office once again raised objections saying that this had to be done on their own blank form.

The agony didn’t end there. The registrar’s branch office wanted the name of the officer of the bank and his specimen signatures to be given. While the name may be material, it beats logic as to the purpose for which the specimen signature of bank officials’ are required since they are not on record with the registrars.

Now, the registrars also wanted a fresh redemption application to be submitted, ostensibly because the original one was considered invalid. Murthy wonders how can they ignore the original application, which is a part of the documentation for redemption? He asks, “Pray, how can a fresh application with a similar signature, which rendered the original application invalid, now be considered valid? The exercise began with the redemption application, where after a demand for attestation of the signature arose, and as such, it continues to be part of the process and the freshly attested signature, an additional document.”

The unhappy story continues further. Murthy said the registrars then advised that, in addition to a fresh redemption application and fresh specimen signature duly attested by the bank, a copy of an ID proof document with a signature thereon, agreeing with the one on the redemption application and the one certified by the bank was required! Why an ID proof again? And after the banker certifying the signature and account details why another proof of signature?

Murthy asks with justifiable wrath whether this procedure is prescribed by SEBI or these were just delaying tactics amounting to harassment by the registrars/MF company? Murthy’s case may not be an isolated one.

There may be many more investors out there going through these nightmares — across many other mutual funds and registrars. It may be worth SEBI’s time as well those of MFs and registrars, to look into these issues and reduce the scope for harassment of investors. Surely, they don’t want investors to be ‘Abhimanyus’, do they?