Most of the aspiring young adults aim at pursuing higher education. Their ultimate aim is to have a great career and high income through employment or entrepreneurship. Though higher education instils confidence in young adults and makes them competitive in today's cut throat competition, ignorance still prevails in terms of having a common knowledge on one's investments. And this ignorance of investors results in bad investment decisions, which are also many a times induced by the self-centred distributors.

For example, recently mutual fund houses while sending Consolidated Account Statement (CAS) to their investors have classified some of the mutual fund accounts as 'Dormant account' owing to the fact that there have been no transactions in a particular mutual fund scheme since the last six months. But not being well-versed with the term many investors have panicked and rushed in for redemptions by citing the word 'Dormant account' in their CAS.

This is because most investors fear that once their mutual fund account has been tagged as 'dormant', it would be transferred to the Investor's Protection Fund. Moreover, the banking sector rules, under which customers are required to "reactivate" if a savings bank account is classified "dormant or inoperative", have added to the panic.

According to para 14.3.4 of the Master Circular for Mutual Funds titled 'dormant account holders', "mutual funds shall also provide statement of accounts to those unitholders who have not transacted during the last six months prior to the generation of the statement of accounts." This classification unfortunately brings most of the investors under this category as generally in case of lump sum investments in mutual funds do not have series of transactions and one invests with a long-term investment horizon, whereby no transaction is done every six months. Only investors in Systematic Investment Plans (SIP), where there are regular monthly or quarterly investments have escaped this classification.

What should investors in case of their 'dormant account'?

We think that investors need not panic, if they see their CAS classifying any of their folios as dormant. It is noteworthy that with the folio / account being classified as 'dormant', it merely indicates that you have not transacted in the last six months. Also, the mutual fund account will in no case be transferred to the 'Investor's Protection Fund'.

Apart from checking your account status, one should also read the mutual fund account statement well for other details such as name, address of communication, the mutual fund scheme name and the option selected, bank account details and nominee details if any.

Our view:

Since the term 'dormant' creates confusion and panic in the minds of many investor, we are also of the view that the matter should be taken up by the industry body AMFI, which should direct all the mutual fund houses not to use the word 'dormant account' in the CAS; and even if they do, they should give a proper clarification before using such ambiguous terms which makes investors nervous and ultimately redeem their investments from mutual funds. We think that simply stating that "there are no transactions in the last six months", would be most appropriate.

Do you think that the mutual fund statements use more of technical jargons? Let us know your comments or post them on our our Facebook page / Twitter page.

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ramesh.j.kumar94@gmail.com Aug 20, 2019 L&T Mutul fund deactivating your account once you are not make any transaction from last month. My L&T Mutul Fund folio was dormant and not able to see the online in L&T MF site. Also folio was not reflecting on CAS statement. I am struggling with L&T Mf from last two week to activate the folio so that I can see online. My opinion redeem all unit of dormant folio and invest in your active folio.
rgkinvesty@gmail.com Jul 06, 2012 AMFI's,unending ever  changing policies,most of them are not good for small investors,when we invest we are said think of long term, dormant word should be used after 3yearsof no activity,before that statement can highlight for how long there has been no trxn.they should think of investors,all the pains are on part of investors AMC can escape anyway cause amfi dont market itself to listen investors grievience ,amfi should ask for investors views(retail investors)
tclaassen1@home.nl Jul 25, 2012 Sounds like you're desperate to make money. Desperate enough risk incurring sizable debt. If you don't know enough about the market and how the average Joe makes it, you need to understand that the brokers are in the business of taking Joe's money. There are other brokers and better deals for people who know the industry. It's a lot like gambling in a casino (never done it): the house has the advantage. The house makes it look like you're making wagers against the other players or betting the odds, but the successful ones took a lifetime to learn how to beat the house.You have to learn everything without actually placing your money on the table. Otherwise, the dealer err broker will just take your cash and laugh you out the door.
mchandrashekhar@hotmail.com Jun 20, 2012 You are right. Why the heck should " Dormant" be written ? It is my free will not to top up once every six months. It is as if Fund Houses have given the first warning -- 'you better invest regularly or else-----'.  This terminology needs to be corrected asap.
rvpoola@yahoo.com Jun 20, 2012 Well, in the case of stocks the investors may not indulge in any "transaction" because they want to hold the stock for long term. The MFs being stocks based, the same applies to them. After all, the longer the holding period of MFs, the better rate of return they are supposed to give. And where is the question of them being "dormant"? Simply because there has been no transaction in a particular scrip, can be removed from the portfolio of a demat account? Classifying the MF holdings as "dormant" will only be detrimental to the Asset Management Companies, as the investors will try to redeem them as soon as possible as a panic reaction

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