What would happen to your investments if MF distributor dies? AMFI guidelines

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Published: July 24, 2020 4:20 PM

From a scratch in 1964, it's the distributors who helped the MF companies build up an average AUM of over Rs 6.3 lakh crore till the direct schemes were launched on January 1, 2013.

mutual fund, MF, Debt Funds, Equity-oriented Funds, regular schemes, direct schemes, institutional investors, HNI investors, MF distributiors, MF investors, change of MF distributor, AMFI guidelinesmost of the individual retail investors depend on distributors to assess their investment needs and execute their retail MF investments accordingly.

It’s the distributors who have spread awareness about mutual funds (MFs) among the traditionally risk-averse Indian investors and diverted many such investors towards equity investing by making them aware of the superior long-term equity return by taking calculated risks. As they generally don’t charge fees for spreading the awareness and get commission/brokerage from the Asset Management Company (AMC), taking help from distributors was viable for initially reluctant retail investors, who wanted to test the water with small investments in equity-oriented MF schemes.

In fact, from a scratch in 1964, it’s the distributors who helped the MF companies build up an average Asset Under Management (AUM) of over Rs 6.3 lakh crore till the direct schemes were launched in India on January 1, 2013.

Presently, the institutional and high networth individuals (HNIs) are the majority investors in direct schemes especially in Debt Funds segment, while retail investors still comprise the majority in distributor-driven regular schemes in Equity-oriented Funds.

So, most of the individual retail investors depend on distributors to assess their investment needs and execute their retail MF investments accordingly.

Now the question is, what would happen to the money invested, if the distributor, on which such an investor depends, either dies or quits the distribution business?

To ensure that investors don’t suffer due to unavailability of the distributor, through whom an individual invested in MF, the Association of Mutual Funds in India (AMFI) has issued a detailed guideline.

According to the AMFI guidelines, in case of death of your MF distributor, his/her nominee/legal heir may serve you, provided:

  • The deceased distributor had a valid ARN on the day of his/her death.
  • The nominee/legal heir has a valid ARN on the day of requesting AMFI and respective AMCs for transfer of the deceased distributor’s AUM in his/her name.
  • The nominee/legal heir writes to you and other investors served by the deceased distributor about the intended transfer of AUM with reason and provides an option to choose any other distributor.
  • If you don’t object within 15 days, the nominee/legal heir of the deceased distributor will start helping you in managing your MF investments.

In case your MF distributor decides to voluntarily discontinue his / her distribution business, he/she has to write to you to change your MF distributor to any other MF distributor of your own choice, for your future service requirements / MF investments. The distributor has to send communication to all his/her clients.

In such a case, you and other clients have to write to the respective AMCs about the inclusion of the desired distributor’s ARN code in place of the existing distributor’s ARN code. Once, the change is made, the new MF distributor will start serving you.

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