Almost all of us are salaried employees of some organization or the other and so we know what an Employee number is. We also know that it is a unique ID using which an organization can identify its employees. But, what is this Employee Unique Identification Number (EUIN)?
The Securities & Exchanges Board of India (SEBI) has come up with a recent ruling that is aimed at controlling mis-selling of Investment products esp. Mutual Funds. This whole Employee Unique Identification Number (EUIN) concept is a great step towards protecting the investor interest. The idea behind this article is to learn what this is and how it will be useful to the common investor.
So, What is this Employee Unique Identification Number?
The Employee Unique Identification Number or EUIN is a unique alpha numeric value that can be used to identify the employee or relationship manager or sales person of all the distributors in the country who sell Mutual Funds to Investors. It will start with an "E" and will have 6 digits in it. For ex: E123456 or E987654
A Little Bit of Background on why this Employee Unique Identification Number concept came up:
As you might be aware, a majority of the investor population in this country depend on the investment advice by the agents and sales persons who actually sell some sort of investment product. In order to sell their products, they go to great lengths to explain how good their product is, even though there may be better products that are available in the market and suit the needs of the investor better. This is called Mis-Selling. This is rampant all over the country and every day hundreds of innocent investors fall into this blatant misselling of investment products.
With numerous complaints lodged by investors with grievances to SEBI, there was absolutely no way that the governing body could locate who was the sales agent who mis-sold the product to the investor. I may have wanted to invest in a fund where safety of capital is my utmost priority. If I do not know much about mutual funds, the sales person could tell me that one of the most aggressive equity mutual funds is a conservative fund where capital preservation is top priority and I could believe them. What if the market tanks after 6 months and my investment is worth only 50% of what I put in 6 months ago? I can complain to SEBI that this XYZ person sold me this Mutual Fund wrongly but they cannot help much because there is no proof that this XYZ person only sold it to me.
So, on September 13th 2012, SEBI issued a circular to the Association of Mutual Funds in India (AMFI) to create an unique identification number (EUIN) of the employee/relationship manager/sales person of the distributor interacting with the investor for the sale of mutual fund products.
The following are some questions you may have about this new Employee Unique Identification Number scheme. I have tried to answer them as best as I could. If you have any further questions, feel free to leave a comment and I will try to answer them!!!
1. What are the Benefits of this Employee Unique Identification Number?
EUIN will assist in addressing the problem of mis-selling even if the employee/relationship manager/sales person leaves the employment of the ARN holder/Sub broker. Once the EUIN of the person who sold the investment product gets registered in the investor's application form, this will be stored forever and in future in case of any complaints both SEBI and AMFI can go back and find out who was the agent who sold this product.
Think of it this way, if I knew that in future if the product I recommend to you does not do well and you file a complaint with SEBI and SEBI can easily find out that I was the guy who gave you the wrong advise, do you think I will play-around and give you random ideas? I won’t. I will make sure I do my homework and give you only good advice. This is amazing news as an investor, isn’t it?
2. Is Employee Unique Identification Number Applicable for all Investments?
No. It is applicable only for Mutual Fund Investments that are routed through a registered ARN Holder.
ARN stands for AMFI Registration Number. It is the unique number with which AMFI can identify the company that is selling the services. EUIN will be provided to all of the staff of this company who will do the actual selling part to investors
3. Is it Mandatory to provide this Employee Unique Identification Number for all transactions done through an ARN holder?
This EUIN is aimed at identifying mis-selling or wrong financial advice cases. If I go to an advisor and ask him what is the best mutual fund for me for my long-term retirement goal and he suggests I invest in XYZ scheme, I need to mention the EUIN of this guy who gave me the advice.
If I have already decided that I want to invest in XYZ scheme and just go to this ARN holder and ask him to execute my transaction, the EUIN is not required because the agent hasn’t given me any advice yet.
4. So, what should I do for such Execution Only Transactions?
In case of Execution-only transactions, the following declaration available in application form should be ticked by the investor.
"I/We hereby confirm that the EUIN box has been intentionally left blank by me/us as this is an "execution-only" transaction without any interaction or advice by the employee/relationship manager/sales person of the above distributor or notwithstanding the advice of in-appropriateness, if any, provided by the employee/relationship manager/sales person of the distributor and the distributor has not charged any advisory fees on this transaction"
Once you tick this declaration it means yours was an execution only transaction and that the EUIN did not give you any advice. In such cases, in future if your investment backfires, you cannot claim any liability or responsibility from the EUIN because all he did was do what you told him to do...
5. Do I need EUIN for all Mutual Fund Transactions?
No. You need it for fresh purchases, Switch between schemes and registration of a new Systematic Investment Plan (SIP) or Systematic Transfer Plan (STP). Other transactions like Redemption, Dividend Reinvestment etc. do not require EUIN.
6. In case the sales person gives me an invalid EUIN, will my transaction fail?
No. Your purchase or subscription request will still go through, even if the agent gave you an invalid EUIN. However, the ARN under whose employment this agent got his EUIN will be intimated of this failure.
7. What is an Invalid EUIN?
The Employee Unique Identification Number (EUIN) mentioned in the application form is considered invalid if:
1. It is not available in the EUIN Master list
2. The validity period of the EUIN has expired or
3. EUIN and ARN details mentioned in the Application form do not match. For ex: EUIN was got for Mr. X for Org. ABC but is currently working for Org. XYZ and still using his old EUIN. The ARN used will be that of XYZ but Mr. X's EUIN is still tagged to ABC in the system.
8. Would the ARN Holder company care if it receives an Invalid EUIN message?
Of course it would care. The company and its agent are selling you Mutual Fund products so that they can earn an income out of it. If a transaction ends up in the Invalid EUIN category, the brokerage fee that the company is eligible for, is "Held" and will not be paid out until the company clears out the situation. The company has 90 days to clear out the situation failing which the brokerage fee will be permanently forfeited.
Things TO-DO as an Investor:
If you are an investor who is availing advisory services from any individual/company, you need to ensure the following:
1. Ask for the new application forms/transaction forms which have spaces for ARN code, Sub Broker ARN code, EUIN, Sub broker code (as allotted by ARN holder).
2. Make sure to ensure that the Agent does not "Tick or Check" the declaration explained in Question No. 4 if you have availed advisory services from him. They may try to trick you into putting a tick mark on the declaration to relieve themselves of all responsibility even though, they recommended that product to you. Be cautious and put a tick mark in the section only if you decided to buy that fund all by yourself.
Some Final Words:
Personally, I am really glad that both SEBI and AMFI are coming up with steps to protect Investor interest and curb mis-selling. Though this scheme isn’t fool-proof (Agents could still not mention their details and put a tick mark on the declaration as if the investor took the decision himself), it is a step in the right direction. I am sure that in the forthcoming years, this scheme will be fortified and made better to protect the common man from the rogue agents...
Happy Investing Folks!!!