Rights of Mutual Fund Investors

There are certain rights enjoyed by the investors with respect to service standards that they can expect from mutual funds:

  • Investors are entitled to receive dividends declared in a scheme, within 30 days.
  • Redemption proceeds have to be sent to the investor within 10 business days from the date receipt of such request by the AMC. Delays in this respect will lead to the AMC paying a penal interest on the proceeds at a rate specified by SEBI from time to time. (The current rate is 15% and is to be borne by the AMC or sponsor and not the fund).
  • If an investor fails to claim the dividend or redemption proceeds he has the right to claim it up to a period of 3 years from the due date at the then prevailing NAV. After the expiry of this period, investors will be eligible to receive the NAV prevailing at the end of the 3rd year.
  • Mutual funds have to allot units within 30 days of the IPO and also the scheme for redemption if it is open-ended scheme.
  • Mutual funds have to publish their half-yearly results in at least one national daily, and publish their entire portfolios at least once in six months. Such disclosure should be done within 30 days from the six monthly account closing dates of the fund.
  • Trustees will have to ensure that any information having a material impact on the unit holders’ investments should be made public by the mutual fund.
  • If 75% of the unit holders’ so decide:
  1. A scheme can be wound up.
  2. Meeting of the unit holders can be called.
  3. Appointment of the AMC of the mutual fund can be terminated
  • If there is any change in any fundamental attribute of a scheme the unit holders have to be notified through a letter. They also have the right to repurchase at NAV without any load, before such a change is effected.

Mutual Fund unit holders have the right to inspect the following documents:

  • Copies of the trust deed, investment management agreement and agreements with fund constituents.
  • Memorandum and Articles of Association of the AMC.
  • Unabridged balance sheet of the mutual fund schemes, sponsor and the AMC.
  • Text of the SEBI Regulations.

There are certain limitations to the rights of the investors:

  • Investors cannot sue the trust, as they are not distinct from the trust which is only the registered owner of their funds.
  • Investors can lodge complaints against trustees or the AMC. Investors can also lodge complaints with SEBI for non-compliance with SEBI regulations by sponsors, AMC or the trustees.
  • Investors cannot be compensated if the performance of the fund is below expectations. Investors have to fully bear the risks associated with the schemes. Only explicit guarantees provided in the offer document by sponsor or AMC is enforceable under law.
  • There are no legal remedies to a prospective investor. In order to enjoy any of the above rights, he must be registered investor with the fund.

Credit: Investment Management-KU