Mutual Fund Fraud- How an Investor can protect itself from it

81 / 100

Mutual Fund Fraud– Mutual funds have gained popularity in recent years as a way for individual investors to access professionally managed portfolios of securities. With the growing popularity of mutual funds, there may be an increased risk of fraud as scammers may try to take advantage of uninformed investors. In this article we will be explaining about the safeguard an investor can do to protect itself from the fraud.

Mutual Fund Fraud, Securities & Exchange Board of India
Securities & Exchange Board of India- Image courtesy Moneylife

Mutual Fund Fraud

Mutual fund fraud refers to any illegal or deceptive activity involving mutual funds, which are investment vehicles that pool money from multiple investors to purchase securities. Some common types of mutual fund fraud include:

google.com, pub-7431197127296523, DIRECT, f08c47fec0942fa0
  1. Ponzi schemes: A Ponzi scheme is a fraudulent investment operation where returns are paid to existing investors from funds contributed by new investors, rather than from profits earned.
  2. Misrepresentation: This can include lying about a mutual fund’s past performance, hiding or falsifying important information, or making unrealistic or misleading promises about future performance.
  3. Insider trading: This occurs when someone with inside knowledge about a mutual fund trades based on that information, which is illegal.
  4. Churning: Churning is when a broker excessively trades a customer’s account to generate commissions, regardless of the customer’s investment goals.
  5. Market manipulation: This occurs when someone artificially inflates or deflates the price of a mutual fund in order to gain an unfair advantage.

It is important for investors to be aware of these types of fraud and to take steps to protect themselves. This can include researching a mutual fund before investing, monitoring the fund’s performance, and reporting any suspicious activity to the appropriate authorities. It is also important to keep records of all correspondence with the mutual fund company and regulatory authorities, including the date, the name of the person with whom the complaint was filed, and the complaint reference number.

What mutual fund investors do in case of fraud

If a mutual fund investor suspects fraud, there are several steps they can take:

  1. Report the fraud: The first step is to report the fraud to the mutual fund company and the regulatory authorities, such as the Securities and Exchange Board of India (SEBI).
  2. File a complaint: If the mutual fund company fails to take action, the investor can file a complaint with SEBI or the Investor Grievance Cell of the mutual fund company.
  3. Gather evidence: Collect any relevant documents or evidence that support your claim of fraud. This could include transaction records, emails, or any other communication that may be relevant.
  4. Seek legal advice: If the fraud is serious and the investor has suffered significant financial losses, they may want to consider seeking legal advice to explore their options for recovery.
  5. Educate yourself about the fraud: investors should be aware of the common types of mutual fund fraud and how to protect themselves from it.

It’s important to note that, mutual fund companies are regulated by SEBI and have a fiduciary duty to act in the best interests of their investors. If investors suspect fraud, they should take steps to protect themselves and report it to the appropriate authorities as soon as possible.

How an investor can file complaint with SEBI

An investor can file a complaint with the Securities and Exchange Board of India (SEBI) by following these steps:

  1. Visit the SEBI website: Go to the SEBI website (www.sebi.gov.in) and click on the “Contact Us” link.
  2. Fill out the complaint form: On the “Contact Us” page, click on the “Complaints” link and fill out the online complaint form. The form will ask for personal and contact information, as well as details about the complaint.
  3. Submit the form: Once the form is filled out, click on the “Submit” button to send the complaint to SEBI.
  4. Keep a record of the complaint: SEBI will provide a complaint reference number, which the investor should keep for future reference.
  5. Follow up: SEBI will investigate the complaint and take appropriate action. Investor can also follow up on the status of the complaint by calling or emailing SEBI.
  6. Contact: To facilitate replies to various queries of the general public on matters relating to the securities market, SEBI has undertaken a new initiative and launched toll free helpline service number 1800 266 7575 or 1800 22 7575.

It’s advisable to keep a record of all correspondence, including the complaint reference number, the date of filing the complaint and the name of the person with whom you filed the complaint.

In addition to the above, SEBI also has a Investor Grievance Redressal mechanism, Investor can also file a complaint with the Investor Grievance Cell of the mutual fund company, which will be handled by the company’s Compliance Officer.

Also Read- 7 Personal finances to watch out for in 2023

What to do in case of investor grievance cell of mutual fund company is not responding

If an investor has filed a complaint with the Investor Grievance Cell of a mutual fund company and is not getting a response, they can take the following steps:

  1. Follow up with the company: The investor should contact the company again and inquire about the status of the complaint and the expected resolution time.
  2. Escalate the complaint: If the complaint is not resolved to the investor’s satisfaction within a reasonable time, they can escalate the complaint to a higher authority within the company, such as the compliance officer or fund manager.
  3. File a complaint with SEBI: If the mutual fund company still fails to resolve the complaint, the investor can file a complaint with the Securities and Exchange Board of India (SEBI). SEBI has the power to investigate and take action against companies that fail to resolve investor complaints.
  4. Seek legal advice: If the investor has suffered significant financial losses, they may want to consider seeking legal advice to explore their options for recovery.

It’s important to keep records of all correspondence with the mutual fund company and SEBI, including the date, the name of the person with whom the complaint was filed, and the complaint reference number. This will be helpful for future reference.

It’s also advisable for an investor to check SEBI’s website for any recent circulars or announcements regarding the mutual fund company in question, to stay updated with the any regulatory action taken by SEBI.

FAQ- Mutual Fund Fraud

Ques- What are types of Mutual Fund fraud?

Ans- Mutual fund fraud refers to any illegal or deceptive activity involving mutual funds, which are investment vehicles that pool money from multiple investors to purchase securities Some of mutual fund frauds are

  1. Ponzi schemes: A Ponzi scheme is a fraudulent investment operation where returns are paid to existing investors from funds contributed by new investors, rather than from profits earned.
  2. Misrepresentation: This can include lying about a mutual fund’s past performance, hiding or falsifying important information, or making unrealistic or misleading promises about future performance.
  3. Insider trading: This occurs when someone with inside knowledge about a mutual fund trades based on that information, which is illegal.
  4. Churning: Churning is when a broker excessively trades a customer’s account to generate commissions, regardless of the customer’s investment goals.
  5. Market manipulation: This occurs when someone artificially inflates or deflates the price of a mutual fund in order to gain an unfair advantage.

————— END —————

4 thoughts on “Mutual Fund Fraud- How an Investor can protect itself from it”

Leave a Comment