Why PAN can confuse investors

[K.Karthik Raja]

Why PAN can confuse investors

Investing in mutual funds is always a bit complicated. For starters,
you have to take a call on the kind of your risk appetite. Then, match
a fund to meet those needs. And then, there are new guidelines that
you need to comply with to be able and continue to invest.

PAN pangs

When schemes merge, you will have to provide the fund manager with the
PAN in advance or the units will be redeemed

You will have to give your PAN for all the folios, even if they are in
the same AMC

In spite of the PAN the KYC norms will continue to be the same

A new guideline introduced recently is the requirement to have a
permanent account number for every purchase that you make. This is
likely to have some impact on the entire process. What you will need
to consider are the various side effects of such a rule on your
finances.

When two schemes are merged, the investor has to be given the units of
the scheme with which, their scheme is being combined.

While this has no implications for the unit holders of the other
scheme, as they would continue to enjoy the same number of units, for
the person whose scheme has been merged has two options. Either you
can redeem the units held without an exit load within a specific time
or can opt for units in the merged scheme.

If you go for the latter option, the PAN will have to be produced. In
this case it is going to be considered as a default. While, there
would be some time given for submitting the requirements, non-
compliance would lead to redemption of the units.

It is, therefore, imperative that you keep a track for communications
from your asset management company, especially when there is a
likelihood of mergers. Earlier, the investor would be allotted units
in the merged entity, even if they did not produce the PAN.

There are other procedural effects too that has come about with this
new requirement. Several investors can be stuck, even though they have
a PAN and have submitted it to the mutual fund.

This is because the PAN has to be present for every folio that you
have with an asset management company. Often, it has been noticed that
when an investor has more than one folio with the same AMC, they
submit the PAN details for only one folio, with the impression that
the fund will automatically include the PAN for other folios as well.

But, at a later date, they realise that this has not actually
happened. Also, the problem will get accentuated when the folio is
held by more than one person and all do not have a PAN because they
will not able to invest in the folio any further.

Last but not the least, if it seems that completing the process by
producing the PAN will smoothen out the process of investment, there
is a rude shock awaiting you.

This is because the presence of the PAN does not mean that your life
is any simpler as the know-your-customer norms would still have to be
diligently followed by the AMCs. The details that are required for
getting the KYC acknowledgement will have to be submitted as usual.

The acknowledgement then has to be produced for each and every scheme
that you invest in. And submission of PAN for every transaction has
just made the issue more cumbersome.

For non-resident Indians, who want to invest in mutual funds, it is
going to be worse. For one, they find it difficult to obtain the PAN
itself and non-compliance would mean no more investment in India. This
issue will need to be tackled because many of them are likely to find
their investments stuck, till the time they have a PAN card.

Yes, streamlining the process of mutual fund investment is good, but
it should not make life difficult for the investor. And drive them
some of them away.