Wealth-Forum e-zine

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Will Rs. 50,000 crs of MF AuM get frozen now?

Vijay Venkatram, Managing Director, Wealth Forum

16th July 2016

In a nutshell

There are over 25 lakh investors (unique PANs) with MF AuM in excess of Rs.50,000 crores, who have not yet submitted their FATCA declarations. And time is fast running out. Investors who do not submit these declarations by 31st August 2016 (that's just 6 weeks away) will have their accounts frozen for fresh business, or in the worst case, can see their investments redeemed and folios closed. You need to act fast to ensure none of your clients face this unwelcome prospect - and if you use this opportunity smartly, you can actually underscore to your clients the need for someone to take care of their investments, and highlight just one of the downsides of going direct.

Even as we rejoice incremental steps at making KYC a simpler process for new investors, there are some legacy issues that we need to tackle on a war footing, lest they become a sore point for lakhs of mutual fund investors.

We are all aware of the FATCA declaration that needs to be given by all investors - even those who are not even remotely connected with the US or any other foreign country for that matter. Now, we may argue about the relevance of this whole exercise, but the point is that the Indian Government has signed an international agreement, which binds us to a certain course of action to ensure compliance with this agreement.

25 lakh investors; Rs. 50,000 cr industry assets at stake.

There are as of now over 25 lakh investors (unique PANs) who have not yet given this FATCA declaration. Their collective AuM in the mutual fund industry is estimated at over Rs. 50,000 crores. According to the law, failure to get this declaration by 31st August 2016 will render all these accounts to be closed. Closed could mean amount to be redeemed and folio to be closed.

What does "closed" mean?

AMFI has written to SEBI to interpret "closed" as frozen - which will mean that these folios will be frozen for fresh business. SEBI has to take a decision on this, and it appears it will do this in consultation with other financial services regulators like RBI and IRDA - who too have to ensure similar compliance on bank accounts and insurance policies.

There is perhaps some reason to believe that "closed" will be finally interpreted as frozen, going by how SEBI has directed other incomplete KYC accounts to be treated. So, the best case is that "closed" will be interpreted as "frozen", and the worst case is that it will mean redeem and close. Both are not particularly happy outcomes for investors.

Only 6 weeks to go and 25 lakh investors to be reached out to

What our industry can ill afford is to have 25 lakh unhappy investors whose accounts get frozen on 1st September 2016 because their FATCA declarations have not been obtained. We have six weeks to go and 25 lakh investors to reach out to in this period.

CAMS provides in their distributor mailback service, a report on all investors tagged to your ARN, who haven't yet provided their FATCA declarations. Karvy I am sure will have a similar report for distributors. You will do these clients a big favour by reaching out to them proactively, sensitising them about the urgency of the matter, and encouraging them to submit their FATCA declarations immediately.

This can be done online for investors who have provided their mobile numbers at the time of making their investments, as an OTP (one time password) is sent out to the registered mobile number to facilitate online submission. Those who haven't provided their mobile numbers will perhaps have to rely on you to send them the manual declaration form, sign it and return it to you, to enable you to lodge these with the R&T agents well within the deadline of 31st August 2016.

Think smart. Use this as an opportunity, not just a hassle.

Do take this project up as a key priority for the next 4-6 weeks and ensure that none of your clients' accounts get frozen on 1st September 2016. Smart IFAs will perhaps use this as an opportunity to underline to their investors the need to have someone helping them with their investments, and underscore the challenges of going direct. After all, who is going to handhold direct investors, remind them and ensure compliance within the deadline?

Useful documents

CAMS has forwarded to us the following documents which you will find very useful in this exercise. Click on the links below to download and use them.