When you buy any financial product, you are expected to read the fine print and disclaimers. While buying mutual funds, you must have read somewhere, "mutual fund investments are subject to market risks, please read all scheme related documents carefully." So, in other words, the onus or responsibility is on the buyer while you invest in mutual funds. This principle of 'let the buyer beware' or 'caveat emptor' has been prevailing since a very long time. But now there is buzz that this principle should shift to 'let the seller beware' or 'caveat venditor', as it is called.

Nachiket Mor committee appointed by the Reserve Bank of India (RBI) on 'Comprehensive Financial Services for Small Businesses and Low Income Households' has found that, the current structure of customer protection has severe restrictions. The committee has noticed that considering vast difference between available information along with that in expertise, the power of seller would be asymmetrically higher than that of the buyer if the current system of 'caveat emptor' continues. Therefore, the committee has suggested that there is a need to shift from the current system to a system where seller will be accountable for the service. The committee feels, the seller should sell products or offer advise after considering, financial situations and financial needs of potential buyers. The Executive Director of RBI, Ms. Deepali Pant Joshi, is also of the view that, once the caveat venditor (let the seller beware) principle is ushered in; it will force the seller to take responsibility for the product and discourage the seller from purveying products of inferior quality.

You see, in the past, especially during the exuberant phase of the market from 2002-07, financial intermediaries resorted to enormous mis-selling, which left investors in lurch, while the sellers of such products took cover under principle of 'let the buyer beware' or 'caveat emptor'. Even now with Narendra Modi at the helm and expectations of the better days ahead for the country, we are yet again in exuberant times. This gives way to sellers of financial products to push products without recognizing the financial needs and situation of the investors or buyers. Banks being one of the important third party distribution channels have taken undue advantage of their banking relationship with customers and mis-sold products which do not suit investors' profile or need. For instance, individuals nearing retirement have been sold Unit Linked Insurance Plans (ULIPs) and equity oriented funds. Banks have escaped due to the principle of 'let the buyer beware'.

PersonalFN is of the view that, holding seller of the financial products and services responsible for advice as well as quality of the product /service, would discourage sellers from mis-selling. PersonalFN welcomes such changes which empower investors. However, at the same time PersonalFN is of the view that, investor education is the need of the hour. PersonalFN has been serious about educating investors and making them aware about their finances. In association with Franklin Templeton Mutual Fund, PersonalFN has launched an investor education and awareness program. PersonalFN is of the view that, before seller becomes aware about financial circumstances of the buyer; buyer himself needs to understand his financial goals and his / her current financial health. Making seller responsible would definitely provide better defense to buyers, but that wouldn't be sufficient for him to attain all his financial goals.

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