Most mutual fund investors route their monthly instalments or lump-sums through distributors – online and offline. But have you ever thought of what would happen if there is turbulence in the financial intermediary company or online platform?
Well, that’s exactly what happened at one of India’s largest mutual fund distribution platform – Wealth India Financial Services, which runs the Fundsindia online platform.
The founders were asked to leave the company owing to differences with the platform’s PE(private equity) investors on how to run the business. The exit was sudden and unexpected.
Fundsindia has Rs 6400 crore assets under management and about 2.4 lakh ‘investing’ investors.
As of May 2019, the Indian mutual fund industry had Rs 25.43 lakh crore assets under management. Monthly SIP (systematic investment plan) investments have been coming in at a rate in excess of Rs 8000 crore. The number of SIP accounts stands at 2.69 crore, according to data from industry body AMFI.
If you invest through the portal, is your money safe? Do you need to take any precautions? Read on as we explain as to how your investments are quite secure and how these platforms act only as intermediaries.
How distribution platforms function
When you make your monthly SIP or the occasional lump-sum investments through an online or offline platform/distributor, the transaction is essentially between you and the fund house.
Once the fund house generates folio number, the amount that you invest moves from your bank account to the respective asset management company’s account and finally gets to the specific scheme that you have chosen to invest in.
The platform or the distributor merely acts an enabler of the platform that provides the technology to carry out the purchase or sale of mutual fund units in an easy manner.
So, if anything were to happen to the portal or the platform, it would be affect only itself.
The investor’s money would be absolutely safe as you can always approach the fund house to redeem your money. If you wish to continue, you can move to another platform or even choose to invest directly through a variety of online modes.
Investor safety assured
There was no official response from Fundsindia when Moneycontrol tried to contact the new management.
But one of the exiting founders assured that the platform was “absolutely safe and secure” and that there was no cause for mutual fund investors who route their money through the platform to worry.
Swarup Mohanty, CEO, Mirae Asset Global Management said, “It appears to be a case of a difference of opinion between the founders and the PE Investors. Any funded platform or business may face such issues. We should give the new management at least six months before judging them. Even in our case, the founding CEO and CIO are no longer there.”
What should you do?
As an investor, anything going wrong with the distribution platform can cause disruptions on the operating and logistics of investing. But if you can switch platforms or to direct modes, you can once again transact smoothly. In the Fundsindia case though, only the founders have exited; the platform very much continues to operate.
If there are fears that the new management may start charging instead of retaining the ‘free’ structure till now, you may want to rethink about continuing with the platform.
Insiders at Fundsindia also suggest that the top people in the research team have resigned. This may be an added cause for concern for those looking for advice on the right funds to buy, as a new team may come with a very different set of scheme recommendations. Investors need to stay alert to the evolving situation and must be prepared to change platforms if needed.