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Bank verification can help overcome signature mismatch in mutual fund records

LiveMint logoLiveMint 03-05-2017 Srikanth Meenakshi

I have invested in the ELSS of Reliance Mutual Fund for the past 10 or more years. When I requested for redemption, they refused payment saying there was signature mismatch. I am 77 years old. With advancing age, handwriting changes. Please suggest effective measures for redemption.

—Janhvikant Mishra 

In such situations, an investor need not worry as there are established processes to handle and remedy the issue. When a redemption is rejected due to signature mismatch, an investor would need to go his bank (preferably the bank that holds the account attached to the mutual fund folio), and get the signature attested by the bank manager. This means that the bank manager would attest to your identity and require you to sign the request in her presence. Then, she would certify the signature stating that it is indeed your signature and the mutual fund can trust the same.

When you produce such a redemption request, the mutual fund company would definitely process the redemption.  

Many mutual funds, including Reliance, also have a special form for this purpose, called ‘Signature attestation form’. Again, this is a form that needs to be signed by a bank manager who will certify that the current signature is a valid one from the person whose name is on the mutual fund folio.

I am 27 years old and have been investing Rs16,000 in mutual funds over the past 3 years. My investments include Rs5,000 in ICICI Prudential Long Term Equity fund, Rs5,000 in ICICI Prudential Balance fund, Rs3,000 in HDFC Midcap Opportunity fund, and Rs3,000 in SBI Magnum Multicap fund. I want to add another Rs6,000 as SIP. I am a moderate risk taker, having long-term goals of 10 years. Should I change my portfolio? I am satisfied with the annualized XIRR of 22%.

—A.K. Singh

While designing a mutual fund portfolio, especially for systematic investing, one should take three things into account—the investor’s age, risk tolerance level, and the time frame of the investments. These three factors would determine the overall risk level of the portfolio, and consequently the asset allocation mix that it should have. Different financial advisory professionals give different weights to these factors, and some may consider other factors such as family size and spending patterns. But these three are the most important ones to consider. I am glad that you have mentioned all three in your question.

You are young (27 years old), have a moderate risk tolerance, and are investing for a relatively long time frame (10 years). Two of these factors (age and time frame) suggest a higher risk in your portfolio, but that should be tempered by your risk profile being moderate. Given these factors, I would recommend that you have an asset allocation of 90% in equities and 10% in debt instruments.

Looking at your present portfolio, I see that you have some exposure to debt in the form of a balanced fund. Such funds allocate approximately 25-30% of their portfolio to debt instruments. Considering that, you are investing about Rs1,500 in debt out of the Rs16,000, and that works out to a little less than 10%. You should continue to maintain that.

For the new Rs6,000 investment, you do not need to add a new fund. You can simply add Rs1,000 each to your pure equity funds, and Rs3,000 to the balanced fund in your portfolio. That will take the debt allocation to around 10% depending on the portfolio mix of the balanced fund.

You have indicated a returns expectation of about 22% compound annual growth rate (CAGR). That is a very high level of expectation, even from an aggressive portfolio. You could temper this to about 15% over the long term.

I am 32 years old and I started investing Rs17,000 per month in mutual funds last year. My portfolio as of now has: DSP BlackRock Tax Saver fund (Rs4,000), DSP BlackRock Micro-cap fund (Rs4,000), Birla Sun Life Tax Relief 96 fund (Rs4,000), UTI Mid-cap (Rs2,000), Franklin India Prima Fund (Rs2,000), and HDFC Balanced Fund (Rs1,000). Is my choice good? Should I rework my plans?

—Nitin Volvoikar

As detailed by you, your portfolio has 47% in diversified equity funds (in the form of tax-saving funds), another 47% is distributed across three small and mid-cap funds, and the remaining 6% in a balanced fund. This is a very aggressive portfolio and is suitable only for a person who can think long term (10 years-plus), and can handle market volatility with patience and fortitude. If either of these is not true about your situation, you would need to revisit your portfolio in terms of its asset mix and the type of equity funds you are holding.

If you seek more stability in the portfolio or if you are investing for a shorter time, you should consider adding more debt funds (or at least balanced funds) and replace some of the mid-cap funds with more stable large-cap funds. Also, please evaluate if you need to invest Rs8,000 every month for tax saving purpose (after considering all the section 80C deductions that you can avail). Investing in equity-linked savings schemes (ELSS) beyond the tax-saving needs is not prudent since the money is locked up for 3 years in such funds. 

Srikanth Meenakshi is co-founder and COO, FundsIndia.com.

Queries and views at mintmoney@livemint.com

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