An Investment Gone Wrong Or Not — What Could Have Happened In The Groww Dispute
Amol Joshi, founder of PlanRupee Investment Services, explained that this could have happened thanks to rules that existed before Feb. 1, 2021.
A confusing dispute between an individual representing his sister and Groww, India's largest stockbroker, has taken social media by storm.
Hanendra Pratap Singh claimed Groww did not complete a redemption request by his sister for an investment into the Parag Parikh Flexi Cap Fund made in 2020. The discount broker, meanwhile, initially claimed that the investment had never been made and that the folio in question had been created incorrectly.
Timeline Of Events — The Investor's Perspective
Singh claimed his sister made the investment in 2020 using Groww. Additionally, details, including the folio number and value based on prevailing market prices, were visible on the Groww account, he said.
The user tried to redeem the mutual fund investment but was unable to.
She then directly contacted the fund house, only to be told that the purchase of the mutual fund units was never completed by Groww.
Singh, in his last social media post on the issue, claimed that Groww had decided to "refund/credit" the amount due on the condition that the earlier social media posts should be taken down.
The Broker's Story
In a statement released on social media, Groww claimed that the folio was created incorrectly, as a result of what it called a "recon issue." It said that no money had been deducted from the investor's account.
It later claimed to have settled the amount due with the investor.
To ensure that the investor doesn't get anxious about the claimed amount, we have credited it to the investor on good faith basis. We have also asked the investor to provide the bank statement evidencing the debit of the said amount, claimed to have been invested. This will facilitate our scrutiny, as well as that of our regulators, of the claimed investment in question.Groww.in
What Could Have Happened?
The question many social media users asked, of course, is: how could a folio have been generated if money wasn't debited from the user's account?
Amol Joshi, founder of PlanRupee Investment Services, explained that this is possible. And it all relates to the rules that existed before Feb. 1, 2021. After this date, mutual fund units can only be allotted to investors after the amount gets credited to the fund's account.
Here's what could have happened, according to Joshi:
Singh's sister likely placed a transaction request for units in the Parag Parikh Flexi Cap Fund.
The transaction then likely got registered with a registrar and transfer agent—the record-keepers for asset management companies. A feed with a certain amount of data was then sent to the discount broker, with details like the investor's name, the number of units, and the amount, among others.
What likely occurred after that was a failed payment, according to Joshi.
In this situation, the RTA generates what is called a reverse feed. Once the data in the reverse feed is taken into account by the broker, the investor's account reflects that no units were allotted, likely because of a failed transaction, Joshi said.
In this case, the broker either missed the reverse feed or didn't receive it. As a result, the units were not allotted by the mutual fund house, but the broker didn't know. As a result, the units still reflected in the user's account on the broker's platform and even showed the value based on the prevailing market rate.
Could there be another explanation? Unlikely, according to Joshi, who said that a legitimate transaction wouldn't have resulted in a failed redemption request.
