First batch of MF misselling reports shows limited action

An HDFC AMC case involves misappropriation of ₹54 lakh via fake statements; AMFI has revoked the MFD's licence

- Sashind Ningthoukhongjam

India's mutual fund industry has started disclosing quarterly reports of mis-selling incidents by mutual fund distributors (MFDs), following regulatory emphasis on improving transparency. The disclosures include details of investor complaints as well as the action taken by asset management companies (AMCs).

An analysis of filings by top 20 AMCs shows only four—HDFC AMC, Nippon India AMC, Kotak AMC and Axis AMC—reported only six misselling cases for January to March 2025. The remaining fund houses marked the field as 'NA' or 'nil'. "Six cases among crores of investors seem like a drop in the ocean. A huge number goes unreported. But it's a good start," said Kavitha Menon, registered investment advisor (RIA) and founder of Probitus Wealth.

Five of the six cases involved unauthorized switch transactions—where an MFD moved a client's money from one scheme to another without informing or obtaining the consent of the investor. Such switches are often motivated by the prospect of earning higher commission on a new scheme. The transactions can also result in tax liabilities for investors on sale of existing holdings.

To address such concerns, the Securities and Exchange Board of India issued new commission rules. Effective 1 April 2025, if a distributor switches an investor from an existing scheme to a new fund offer (NFO), the distributor will receive the lower of the two commissions. However, switches to higher-commission existing schemes are still permitted under the current rules.