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For mutual fund investors, dormant does not mean deactivated

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Last year, the Securities and Exchange Board of India (Sebi) had said if there had been no activity/transaction in an individual's mutual fund (MF) account(s) for six months, account should be classified as dormant in the consolidated account statement. This came into effect in the latest set of statements sent to investors.

Many of these statements contain the word 'dormant'. This has left investors anxious about the significance of the word. Long-term investor "the 'dormant' remark was bothering me too... many of us are not well versed with the jargon..
 
Sebi has, however, asked MFs to provide a statement of accounts to those unit holders who have not had transactions in the last six months prior to the generation of the statement.
 
This classification, unfortunately, brings many accounts under the dormant category, because if you put in a lump sum in a MF scheme, the account won't register regular transactions. Hence, in the consolidated statement, the account will be termed dormant due to lack of transaction(s) in the past six months. For instance, many put in a lump sum in an equity linked savings scheme.
 
Transactions will be seen in your account only if you have invested through systematic investment plans as the account can show a fixed amount being deposited every month or quarter. Hence, such accounts will escape being classified dormant.
 
According to financial planners and brokers, the rush to get units redeemed has been huge. Reason: Poor understanding of the term dormant.
 
Most investors confuse the definition of dormant here with that used in the banking parlance. If a bank's savings account is termed dormant, it means a sleeping account. And the account holder has to apply to reactivate it. However, in the case of a mutual fund, the meaning is different. Here, it is just a classification and does not mean a deactivated account.
 
This is only an intimation of their MF holding, where there has been no activity for six months. Investors should not panic as such accounts will not become inactive. Experts say MF agents might be the reason behind investors panicking by pushing them to redeem units to make an extra buck by churning the portfolios. An agent gets a commission every time an investor redeems his/her units.
 
So, ignore the word 'dormant' in your account statement. Instead, check it whether the details are correct, such as the scheme's name, option selected, bank account details and nominee details.
 
Investors can rest assured that everything remains the same, including the units they hold, the NAV (net asset value) and so on, even if the account is termed dormant.
 

Distributors have written to the Association of Mutual Fund Industry and Sebi to have the word 'dormant' removed from the consolidated account statements. So, your next statement may not have the dreaded word.

 

 

 

Happy Investing!!

 

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