SIP-ECS Nexus between MF & Banks

Most of the MF-AMCs encourage (and some even insist) SIP using ECS (to avoid cheque processing overheads). However, the small investor (supposedly the favorite of the MF industry) needs to be well prepared for some financial & emotional shocks...

For using ECS, you fill up a form along with the MF application form. The MF-AMC is expected to get this approved by the Bank (to verify account #, account holder & signature details). Some even insist on a minimum 7-15 days notice to complete this back-end process.

You are happy when you see an ECS-debit from your Bank account and a corresponding credit of units in your MF account. The trouble starts when the next day you notice the reversal of ECS-debit from your bank account and are also slapped with ECS return charges (ranging from Rs 50 to Rs 350 across banks). When you query the Bank, they inform you that the ECS has been returned as they do not have the ECS-mandate. However, they cannot explain how the debit happened in the first place if they did not have the mandate for the same. Also, the bank's code of commitment to customers prescribes that ECS return charges are applicable only in case of insufficient funds (similar to cheque bouncing), but the call center folks have no idea there is such a code (which is available on the bank's website).

The MF-AMC interaction presents another sorry state of affairs. They tell you that they cannot comment on ECS reversal until 10 days. In this electronic age of banking and finance, that is the time it takes to verify if they got the money or not. After 1 month of follow-up (via their non-toll-free number), they are finally able to provide you an RBI transaction number, but they cannot explain what the significance of that number is. Ideally they should have the ECS mandate that has been approved by the bank (which authorizes them to debit your account), but since they depend on third-party agencies for these tasks, they cannot give you the copy of the mandate which you can take to your bank to get this sorted out...

Meanwhile after making a profit of 10% in the monster bull-run, and paying service charges of more than 20% of your investment, and the AMC reversing the units crediting (bringing your portfolio to a complete loss), you are left wondering if the age-old "Cash is King" makes sense...

Is it just my wild imagination or is it possible that the MFs & Banks have identified a new revenue model - since the 2.5% expense ratio limit by SEBI seems to be to big hindrance to generating enough revenue/profits...