The Mutual Fund Show: Redemption Without KYC A Bigger Problem, Say Analysts

Mutual fund investors continue to face difficulties over completing their know-your-customer formalities—nearly three weeks after the market regulator’s deadline for the process. 

As a result, redemptions remain on hold, posing concerns for investors and fund houses. But, fund managers say they shouldn’t be stopped.

“I'm of the camp that fresh inflows, whether it's impacted or not, isn’t the bigger issue. Redemption shouldn't be stopped,” Swarup Mohanty, vice chairman and chief executive officer of Mirae Asset Investment Managers (India), told NDTV Profit. “That's something which we need to talk and address very quickly.”

For an industry that prides itself on fast liquidity, the situation has become a hindrance and there needs to be some action, he said.

Prableen Bajpai, founder of FinFix Research and Analytics, concurred. “Redemption shouldn't be affected at this stage,” she said. “There has to be some mechanism to allow redemptions even if your KYC is on hold.”

As a solution, she suggested that investors re-submit requests for redemption.

Query 1: I invested Rs 10 lakh in SBI Balanced Hybrid Fund, with Systematic Withdrawal Plan of Rs 6,000 per month. My account statement shows cost of investment at Rs 8,78,224 and current value at Rs 10,68,104. Is this okay or do I need to change my SWP amount?

Name: Hasan I Age: 65 years

Prableen Bajpai: I think he said SBI Balanced Fund, I am considering SBI Balanced Advantage fund, because there is also an SBI Hybrid Equity Fund. So, it's a two-year-old fund and when we do SWP, it is ideally based on the amount that they invest against. But in any case, the percentage of withdrawal should be lesser than the growth we're looking at for the scheme. And let's not look at the last one year or two-year returns. It is important that we look at rolling returns over a longer period of time.

So, balanced advantage as a category has given somewhere between 10-12% over the 10–15-year period and the amount he is withdrawing currently is lesser than the growth. So, his withdrawal is around 7%. So, he can continue with this pace of withdrawal. But if he is trying to do an inflation-adjusted withdrawal, then his corpus would get depleted in the next 15 to 18 years.