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02 May 2012 06:00 PM
MFs tighten redemption process to eliminate frauds 
Ravi Samalad
 

In order to prevent fraudulent redemptions, AMFI has asked AMCs to stop accepting redemption requests along with change of bank mandate at the same time.

AMFI has sent an email to all AMCs asking them to stop accepting redemption requests along with a change of bank mandate (COB) at the same time. The guideline came into effect from 1 May 2012 as part of AMFI’s best practices code. This is primarily being done to reduce operational risks.

“There are chances of fraud so AMFI has discouraged it. There has to be some cooling period between any change in bank account request and redemption,” says the chief operations officer of a leading fund house.

Many AMCs are already following this rule.

Recently, DSP BlackRock AMC sent a note to all its distributors in connection with this guideline. “Please note that for any redemption request received which also mentions a new and unregistered bank mandate or a change of bank mandate request (with or without necessary supporting documents), such a bank account change may not be registered and considered for payment of redemption/dividend proceeds,” says DSP BlackRock’s communiqué to its distributors. It has advised its distributors to use multiple bank account registration forms in order to avoid any operational glitches during redemption.

Fund houses allow retail investors to register five bank accounts and ten accounts for non-individual inventors. Last year SEBI disallowed third-party cheques to avoid fraudulent redemption practices.

Distributors say that all AMCs follow their own processes, which creates operational hurdles while redeeming client money. “I have to spend 80% of my time looking after operational issues and 20% for getting business. The new KYC rule is also posing a challenge,” says a Mumbai-based advisor.

 
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