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Opinion | How should investors view MF staff investing in own funds?

Mar 25, 2019

The aim of this initiatives, typically, is to demonstrate ‘skin in the game’. Neil Borate experts if this is indeed true and whether or not such programmes are legally tenable.

Compulsory investment may be viewed as coercive

Darshan Upadhyay, Partner, Economic Laws Practice

As a matter of principle, any investment decision of an employee’s personal wealth is a matter of his or her personal choice. If an employee is forced to invest only in the products of its employer, there could be many personal and legal questions.

What if the employees appetite for risk is different than those of the products offered by his employer? What if the products offered by the competitors are genuinely better and are more in sync with the investment philosophy of the employee? What happens after the employee joins a competitor—one would have to re-evaluate the entire investment strategy based on his or her job?

In T.M. Dinesh Kumar v Malabar Cancer Centre Society, the Kerala high court had said that an employee cannot be forced to open a salary account with any official bank of an organisation. Similarly, in case of mutual funds, the choice of investment should be left with the individual employee and insistence on compulsory investment may be viewed as coercive; the possibility of challenge can’t be ruled out.

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