SEBI prevents attempt to mis-sell an investment product

SEBI today prevented an attempt to mis-sell an investment product to an investor in Delhi by a person claiming as agent of mutual funds.

SEBI had received a complaint from an investor (hereinafter referred to as ' complainant') that some unknown persons claiming to be 'agents' and 'brokers' of Mutual Funds and insurance companies have been contacting the complainant saying that the deceased son of the complainant had invested in Mutual Funds and they are maturing in a short while. In order to get the full amount, the complainant must issue a cheque in advance for a new mutual fund scheme or insurance policy failing which the complainant will lose a substantial portion of the maturity amount as broker commission. The 'agent' informed the complainant that the son had made investments in Mutual funds which are about to mature and on maturity the complainant will get only Rs. 5 lacs. However, the 'agent' further stated that if the complainant makes a further investment of Rs.2.5 lacs, the complainant will get maturity proceeds to the tune of Rs.12.5 lacs.

Thereafter, the Investigations Department of SEBI conducted preliminary investigations where it was found that the phone numbers from which the 'agent' had called were in some others' name and the Company was also in a different name. Sensing a clear attempt to defraud, cheat and misappropriate as well as missell financial products, SEBI deputed an official to visit the 'complainant' at the time of the visit of the 'agent'. The assistance of the Economic Offences Wing of the Delhi Police was also taken. On perusal of the forms and after preliminary enquiries, the suspicions were confirmed that indeed there was an organised attempt by several people to defraud and missell and accordingly an FIR to that effect is being lodged with Delhi Police.

It is suspected that the number of victims of such fraudulent attempts could be much higher, which would be revealed in due course after further investigations by Delhi Police and SEBI.

SEBI cautions investors that investors should verify the credentials of people approaching them as agents / employees before making any investment through such agents / employees.

Direct, Indirect or Nothing?

Investing through direct plans of funds makes sense when investors are certain that going through an intermediary offers no value...

Since the beginning of this year, mutual fund investors have had the option of investing in funds directly with the fund companies in special 'direct' plans of all funds. While investors could have invested directly earlier too, there was no advantage in doing so. However, since January 1, SEBI has asked fund companies to create special direct plans in which the commission that would otherwise have been paid to intermediaries goes to the fund's NAV, and thus to investors.

Even though it's early days yet, a handful of investors have started coming in through direct plans. This number could only grow in the future. It appears that compared to corresponding indirect plans, direct ones will have higher returns of the order of 0.4 per cent to 0.7 per cent per year. Over a long period, that does accumulate. During the last decade, the median large cap equity fund had returns of 18.81 per cent a year. That means an investment of Rs 1 lakh would have grown to Rs 5.37 lakh. A direct plan with returns of half a per cent more would have delivered Rs 5.60 lakh.

Investors should maximise value but you have to decide whether over ten years this differential is large enough to forego the services of an intermediary. The answer depends entirely on what services your fund advisor offers you and whether you can substitute them yourself. Ideally, an advisor would be helping you with investment advise as well procedural help. If you don't think these are worth the extra money and you are confident of your do-it-yourself abilities, then you should go direct.

However, I find that the most important service that intermediaries provide is often not given enough importance--many a time, their sales pitch goads you into investing when you may not have done so. The worst investment is often when you don't invest at all and making you invest could be the most valuable service of all.

Source: http://www.valueresearchonline.com/story/h2_storyview.asp?str=22627