The Hindu Business Line : MFs mull disclosure on investors to intermediaries

MUTUAL funds are dusting their responsibility off preserving investors' privacy. Offer documents of funds are being modified to include the clause that the funds may disclose details of the investors' account and transactions to intermediaries whose names appear on the application form. This may also be extended to bankers.

While asset management companies (AMCs) claim that the intermediaries have always been privy to the information; the addendum exonerates them from all potential repercussions. Prudential ICICI Asset Management Company is the first one to update the offer documents with the clause, but others are also mulling the move.

"We are demonstrating abundant caution by including the clause. The intermediaries are already privy to investors' information; this clause is to make investors aware of this," said Mr Ranganath Athreya, Vice-President — Compliance and Legal, Prudential ICICI Mutual Fund.

Investor information is passed on to distribution companies, brokers and banks to effect brokerage calculation and payments. While this is necessary, the blanket clause poses concerns for investors. "I am flooded with calls from investment companies; when I redeemed a fund, the agents were at my door for days, selling alternative options for that money. This (the inclusion of the clause) would make it acceptable and something that I signed up for," said Tahira Das, a mutual fund investor.

"Though we have not added the clause to our offer document yet, that is something that we are considering at this point. There are invasion of privacy implications, we would need to ponder over these before a final decision is made," said Mr Krishnamurthy Vijayan, Chief Executive Officer, JM Capital Management. According to Mr Vijay Basrur, an investor in mutual funds, the AMC should leave the option to the investor whether he wants his details passed on to distributors or not. There should be a way around sharing transaction details, maybe a unique numbering system or something similar, he added.

"The minute I applied for a mutual fund through a third party distributor, I started receiving brochures and other material from various agencies. While this was not shocking, the fact that I have inadvertently given permission to a potential breach of security, is a scary notion," said Mr Jayant Bhadauria, who has investments in over three fund houses.

At present, AMCs do not have any clauses in contracts with distributors about data protection. "No distributor would share his database of customers with others," emphasises Mr Athreya. While this is true, there are no systems to ensure non-leakage of data via employees of agents transferring the data when they shift jobs from one agency to the other etc. What Prudential ICICI calls a "best practice" might just open a can of worms of investor privacy protection in the domestic financial services industry.