Groww faces fraud allegation: 'Groww app shows mutual fund investment but investor can't redeem', what are the lessons for MF investors? The investor alleged via social media that investments made through Groww could not be withdrawn despite the app showing them as invested. Groww responded, asserting no deduction occurred and the mutual fund transaction did not take place. The incident underscores broader worries among investors about data reliability on fintech apps. ET Wealth investigates the incident's details and implications for mutual fund investors
An incident involving a distressed mutual fund investor has stirred a debate on the safety of investments through execution-only platforms (EOPs) like Groww. Over the weekend, a social media post went viral where a user alleged that the investments made through Groww could not be withdrawn, despite the app showing them as invested. Groww responded, stating no money was deducted and the mutual fund transaction did not take place. The incident has triggered a significant concern reaction across social media platforms, highlighting bigger concerns among mutual fund investors regarding the reliability of the data shown by such apps and overall security made through the protocol of the popular investment platforms. ET Wealth Online delves into the details surrounding the incident — what happened to the said Groww customer? Was it a ‘fraud’? What could mutual fund investors learn from this incident?#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
'Fraud' allegations against Groww: What was the complaint of the customers?
The investor claimed to have invested in a Parag Parikh Mutual Fund scheme in 2020 through Groww, stating that the transaction appeared successful and was even assigned a folio number. Giving an account of how the alleged ’fraud’ or ’scam’ happened, Hanendra Pratap Singh, wrote on social media platform X that his sister made an investment in a particular scheme and she was assigned a folio number, which meant that the transaction was successful. The Groww app was also showing the investment amount till now, along with growth and every detail like any other fund, he said. When his sister decided to redeem the fund, she was unable to do so. The unhappy customer sought clarification from Groww's customer support.Know what Groww responds to scam allegations
Unable to find a satisfying response from the customer service department of Groww, the customer's brother took the matter to social media. Later, Groww issued a statement clarifying that no fraudulent activity had taken place. According to Groww, the funds were not deducted from the customers at any point. The customer's account was showing an incorrect investment due to a reconciliation issue.In the detailed response, Groww outlined the sequence of events leading to the investor's concerns. According to Groww, the investor had initiated an investment of Rs 10,000 on September 25, 2020, through a bank mandate linked directly with BSE's (ISIP) platform. This systematic investment plan (SIP) transaction was processed directly via BSE, with a specific Order ID of 1XXXXXXX6. "On June 27, 2022, in the RTA reverse feed files that we consume, there was another transaction of Rs 50,000 for a different folio but with the same order ID 1XXXXXXX6. As a result, when the file was processed in our system, due to the same order ID the original transaction of Rs 10,000 was updated to Rs 50,000. This resulted in an inadvertent additional units displayed in the investor's portfolio," the fintech platform said.
During subsequent discussions with the customers, Groww requested the investor to provide records showing a debit of Rs 50,000 from their bank account towards the investment on the specified date, which, according to Groww, they have not received till June 25, 2024.
The fintech platform further added, "We have also received confirmation from BSE that no debit has happened in the bank account of the investor w.r.t the claimed amount. Meanwhile, we have also thoroughly checked our bank records and confirmed that no such money was received from the investor on the said date. The root cause of the problem Our systems consume reports from both, the exchange and RTAS, to update and reconcile investors' holdings reports. The unexpected duplication in the order ID resulted in a discrepancy in the holdings of the Investor, where the order initially valued at Rs 10,000 was incorrectly displayed as Rs 50,000. When the investor tried to redeem these extra units (which were not invested by the investor), it resulted in a failure."
Stir on social media: 'Fraud' complaint against Groww
According to various social media posts, the user allegedly had to go through a lot of hassle to resolve this glitch. A LinkedIn post by a relative of the user said, "To everyone's knowledge, we had all the details and provided them to Groww team and had multiple hours long discussions to come to a resolution. Once the Groww team's upper management got involved that's when the resolution of the problem was done."The said post also mentioned, "The resolution has happened and we have gotten our refund or fund money back with the correct current NAV value so that's a good thing on the Groww team's part."
When asked why the fintech platform gave the money to the customer when no traction took place, Groww replied, "There was no refund provided. The customer did not provide any details of a bank transaction of the claimed investment and alleged that Groww deducted the money. Our records show that no transaction was made. We advanced the disputed money to the customer in good faith, until they could find the original transaction details."
It should be mentioned that the customer has not yet provided the bank statement showing the actual debit of the investment amount on any social media platform. If the money was not deducted from the customer’s bank account, then it might simply be a technical error in recordkeeping.
However, it remains a matter of significant concern how such data mishandling went unnoticed for an extended period. While this incident involved a lump sum transaction, the implications for systematic investment plans (SIPs) in mutual funds are worrisome. If a customer has numerous SIPs debiting their account monthly and cannot monitor each transaction meticulously, should they bear responsibility in case of data mishandling?
It remained unclear whose fault it was in the said incident, however, investment platforms have a substantial responsibility to uphold utmost accuracy in managing customers’ investments.
Groww 'fraud' allegation: Where was the glitch? Experts decode how it happened
Typically the execution-only platforms or EOPs such as Groww hold either of these two licenses: 1) Category 1 EOP and 2) Category 2 EOP. With a Category 1 EOP license, the platform integrates its system with mutual fund house registrars and transfer agents (RTAs) such as CAMS and KARVY. Alternatively, with a Category 2 EOP license, the platform can execute mutual transactions with stock exchanges.Abhishek Kumar, a SEBI RIA and Founder of SahajMoney.com explains, "Although the transactions are processed through different entities, the mutual fund folio are issued by respective asset management company (AMC). In this case, a Folio A was created for Rs 10,000 and processed through BSE as a stock exchange with an order ID A. The AMC issued units corresponding to Rs 10,000 of investment under Folio A. Later, due to an issue at the stock exchange, another folio for Rs 50,000 was created — Folio B with the same order ID as Folio A. When the platform reconciled its account with RTA and stock exchange due to the use of the same order ID, it updated the original transaction value from Rs 10,000 to Rs 50,000 and showed extra units under Folio A in its system. However, the AMC had units corresponding to Rs 10,000 as the original investment value under Folio A. When the client wanted to redeem the extra units under Folio A reflecting at EOP's end the AMC rejected it because as per their system Folio A did not have those units in its system."
Anand K Rathi, Co-founder of Mira Money, says, "When an investor makes a transaction, the money is debited by the fund houses and transferred immediately to them. The RTAs then account for it, sending details to the fund house, which in turn sends folio numbers and confirmation to both the customer and the Groww platform. In this specific case, the customer likely attempted to invest in the Parag Parikh mutual fund, but the money was not debited. However, due to a system error, the transaction was erroneously recorded as successful, and the NAV was shown as growing. The customer, seeing the growing investment value, did not check the statements, which did not reflect any actual debit. This scenario represents a rare technical error, a one-in-a-million chance, where the reconciliation process failed. Groww's system encountered a bug, which led to this issue."
Key lessons for investors: How mutual fund investors can keep a track of their investments
While it could be one of the cases, mutual fund investors still can take certain precautions to avoid such incidents in the future. It is important to understand that the role of the investor does not stop once the payment is done. Rathi said, "There would have been multiple confirmations about an investment, so just because Groww shows a Rs 10,000 investment doesn't mean it was made if the amount wasn't debited. It’s also partly the investor’s responsibility to verify whether the investment was actually made."Investors should not just rely on the EOP to check their mutual fund holdings, suggested Kumar. They should check the same by requesting RTAs such as CAMS to send mutual fund consolidated account statements (CAS) to their registered email IDs every month. Kumar explained how a mutual fund investor can opt for a CAS statement — "Go to www.camsonline.com, click on 'Investor Services' section in the menu bar, and select 'Mailback Services'. Then, you need to click on Consolidated Account Statement (CAS) and provide your registered email ID, and set up a password to open the CAS statement and submit the request.
Krishan Mishra, CEO, of FPSB India advised, "To avoid discrepancies, investors should meticulously review their monthly mutual fund statements. First, ensure your KYC information is always updated. Each investment is tracked using a unique folio number, similar to a bank account number, which records your contributions, transaction history, and contact information. Regularly check the CAMS or NSDL CAS report, sent monthly, which includes various investments like equity shares, mutual fund units, bonds, and government securities. This report is crucial for monitoring your investments and ensuring transparency.
Periodically check with fund houses or your CAS to ensure your investments are matching up and in line with your records, said Rathi.
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This story originally appeared on: India Times - Author:Faqs of Insurances
