MUTUAL fund houses are increasing the security features related to investing in their funds to prevent frauds. One of the measures has been non-acceptance of third party cheques from November 15, 2010.
This will have a significant impact in ensuring investors get the units for the amount that they invest, but the mutual funds are not stopping there. They are also asking investors to change the manner in which they write the cheques at the time of investment so that there is adequate safety present here too.
Fraud: Fraud is one of the worries that investors face while investing in a mutual fund scheme. There have been instances where investors have given the application form with a cheque, but have found that the units have been allotted to someone else even though the money has been withdrawn from their accounts.
This happens because the application form of the investor is switched at the time of making the investment, so while the cheque amount goes from the investors' account, the name, address as well as bank details are of some other investor's.
At present, investors write the name of the scheme when they invest in it. Apart from non-acceptance of third party cheques, funds are now also asking investors to add an additional detail when they write a cheque for investment. There are a few variations in the form of the additional detail that will have to be added, but it has to be noted that all the funds might not allow for all the routes mentioned here.
PAN: Normally an investor writes the name of the scheme on the cheque when they invest their money into a mutual fund.
This process was enough for the amount to be used for the allotment of the units, but now, fund houses are asking for an additional detail beyond the fund name to be written on the cheque.
One of them includes the Permanent Account Number (PAN), which is a unique number for each investor.
Thus, this becomes a distinguishing mark for the investment and hence will be able to ensure that the investment amount is not credited to the folio of some other investor. The PAN of the first investor has to be mentioned and this can also be checked with the details that are recorded with the fund. In this case the details will be written as `ABC scheme a/c XXXXXXXXX'.
Investor's name: Another measure that the mutual fund houses are asking investors to adopt is mentioning the name of the first investor after the name of the scheme in the cheque. This is done to ensure that some other person does not use the cheque for the purpose of depositing it into their account and thus perpetuate a fraud. The mutual fund on its part will credit the units only into the folio of the investor whose name is mentioned on the cheque after the scheme name.
This can be done by mentioning the following details -`ABC scheme a/c -Full name of the investor'.
Folio number: For existing investors the situation can be made easy with the use of the details of the folio number after the name of the scheme in the cheque. This is a number that is allotted to each investor by the mutual fund house when they make an investment with them so that the details can be easily accessed when required.
Existing investors who want to make additional investments with the fund can adopt this route too if the fund allows it and this will be another safety feature.
Again, the mention of the number ensures that the money is not appropriated by someone else even if the cheque falls into their hands and this is precisely what the mutual fund houses want.
This will be written as `ABC scheme a/c Folio No'.
