Mutual funds by definition are an excellent option if you want to take away the hassle of investing and relying upon a professional fund managers to invest your money gainfully. A related article on How to Invest in Mutual Funds describes upon how to invest into Mutual Funds and multiple options available with investors in order to make the most out of them.
Once you have started investing into Mutual funds, it is very easy to enter into a few pitfalls which converts all the hassle free investing into a world full of hassles. It is easier to avoid such pitfalls if investors are aware of them and avoid them in the first place. The top 5 hassles are :
1. Giving More Hassle to MFs – Having More Folios
It is a common practice between investors and mutual fund distributors to create a new mutual fund folio for every new investment in the same mutual fund. A folio in a mutual fund represents a unique account number in the respective fund house which identifies the investor. Ideally, you can have all your investments in different schemes of the same mutual fund in a single folio. This is a preferred option for both mutual fund house and the investor. From a fund house’s perspective – it avoids double counting of investors and sending duplicate reminders / updates to the same investor having different folio numbers. From an investor’s perspective, a single folio means – all transactions in a fund house are consolidated in one place.
However, in order to have a single folio, investors have to be careful at the time of investing by quoting their existing folio number in the fund house else the fund house will open a new folio. Often owing to the inertia of digging out the folio number from an existing mutual fund statement, the investors take an easier route of not mentioning the folio number and ends up getting issued with a new folio with their investment. We have come across with multiple investors who have several folios in a same fund house for investments into the same scheme. All these folios have different unit balances and the investors end up facing difficulty to track their investments under a same umbrella. Further, minor requests like change of bank account details, nominee, contact details need to be updated individually for each of the folio and hence these requests need to be placed individually for each folio – a further drag on investor’s time and efforts.
- Always quote your existing folio number while making new / further investment in a same fund house;
- To consolidate multiple folios, visit the respective fund house and fill up a folio consolidation form.
2. Missing Nominees
It takes just a few seconds to add nominees on to your mutual fund account. If avoided, it adds a truck load -of hassle in the life of the nominees when they need to redeem the fund balances lying in the account of the deceased who would then need to be involved in a series of court proceedings in order to prove their right over the funds of the deceased person. Refer to our article which details upon the Importance of Nomination.
- Always nominate a nominee who would take ownership of the investments after the death of the unit holder;
- For existing investments, fill up a nomination form for each of the mutual fund (seperately per folio per mutual fund house)
3. Bank Details – Grrhhh I can’t get my money
If you can not redeem your investments, I would argue the whole concept of investing in the first place. One of the MOST frustrating aspect relating to investing is – when investors need the funds, they are unable to get the redemption proceeds on a timely basis. Fortunately, with mutual funds, things are extremely simple – funds are sent to your bank account registered in your folio. But what if you changed your bank and did not intimate the mutual fund house of the change ? The fund house would attempt sending the funds, but the account would not be existing and would result in unnecessary issues of funds being in the limbo.
If you are aware of your changed bank details not being updated in your mutual fund account, but unfortunately you realise it at the time when you need funds urgently – Alas, it would require you to first modify your bank details in the account and then go for a redemption proceed. Alternatively, you can place a request for cheque being issued – but you may be in a tough luck if the cheque goes to your registered address which may be in a different city and even tougher – if you no longer have access to that address.
Always update your mutual fund houses of changes to your bank details to facilitate quick and efficient credit of redemption proceeds.
4. Where are the Statements / Cheques Going ?
A very common issue faced by investors is an outdated address in their mutual fund account. The consequences are many, but a few critical ones are :
- Your periodic statement goes in wrong hands.
- Dividend / Redemption cheques are lost.
- Any request for online user id / passwords don’t reach you.
It is extremely simple process to update all mutual funds of your address in just one single request by submitting a KYC Change form with any of the mutual fund houses in India. Your request for change would be replicated in all found houses and any incorrect address would be updated.
India is rapidly moving towards digitalisation and more investors are now moving away from paper based statements / alerts to email based e-statements / e-alerts. It is more important for professionals who are travelling and find it extremely efficient to be informed via emails. For every folio, you need to register your email in order to get alerts / statements on a timely manner. If you had a single folio in a fund house, it would be easier for you to update your email id by placing one email address update request per fund house. However, if your situation is messed up with multiple folios, apologies – you need to send update requests for each of the folios.
Make sure that you provide your email address at the time of creation of a folio. Update all folios with your updated email address.