Investing in mutual funds? Beware of frauds before giving personal details

While investing in mutual funds is always advisable because of tax benefits, but at the same time, it may become your biggest nightmare. 

As all the transactions are done digitally, the rise in cyber crime has become a concern for any an investor. 

According to a report by Indian Computer Emergency Response Team, which is part of Ministry of Electronics and Information Technology, revealed that in every 10 minutes, one cybercrime is reported in India. 

If you are first time investor in MF industry, there are chances of getting trapped at first place considering less knowledge about the sector. 

Dhruv Mehta, Key Spokesperson, United Forum, said, "With almost 2500+ MF schemes across multiple categories and asset classes, it is difficult for the customer to understand these schemes and decide which scheme best fits his/her requirement. Also it becomes easier for anyone to set up a fake website and offer to sell you schemes that promise high returns in a short span of time."

Once the ‘website’ collects details of your bank account and other KYC forms (phishing / vishing), they can easily rob you of your life-savings. While it is easier to track humans who committed similar frauds, it is virtually impossible to track your money in the virtual world. 

Parking money in any funds, banks or equities always a risk as you cannot predict markets performance or economy. However, apart from non-favorable events, a certain amount of mis-selling do persists in Mutual Fund space. 

Ajit Narasimhan, Category Head - Savings and Investments, BankBazaar.com said, "This can be in the form of misrepresentation of facts, overstating the possible benefits or gains or understating possible losses by brokers or agents. The other thing investors should be careful about is allowing third parties investing on their behalf."

Mutual Funds allow third-party cheques for investments in funds. Cheques are issued in the name of the funds, and anyone who has the cheques can use them to invest in those funds. 

There have been instances where unscrupulous people claiming to be brokers or agents have taken cheques from unsuspecting investors and invested them in funds of their own. It is always best that investors do their investing for themselves, Narasimhan added. 

When you buy mutual funds through an experienced advisor and distributor, with their all-round knowledge, multiple years of experience & training, it is ensured that first-time investors and retail investors do not get duped. Sharing of Personal and Confidential Information related to identity of  a person and his/her bank account has to be done very selectively and with a trusted person, Mehta said. 

It was only in June, when the Reserve Bank of India had amended Banking Ombudsman Scheme to file complain if you are mis-sold a financial product. 

"Non-adherence to Reserve Bank guidelines on para-banking activities like sale of insurance /mutual fund /other third party investment products by banks," RBI had said. 

So, when they say "Read all the terms and conditions before entering the market", do invest cautiously. 

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