Pru-ICICI Mutual Fund's switching act has taken a new turn with the provident fund authorities deciding to get into the act. Since the provident fund trustee involved in the instant case is a state-level organisation it will be dealt with by the state provident fund commissioner's office.

While there was no clear action being planned by the provident fund authorities, sources at the Employees Provident Fund Organisation said that there were trying to ascertain to which the violation has occurred.

"We will have to see whether the violation occurred at the trustees's end or by the mutual fund concerned," sources said.

"We have only the newspaper reports to go by," said sources. "We will have to ascertain the true state of affairs." Only after that would any action be taken. Central PF Trustees offer returns of around 9.5 per cent.

Incidentally, PF money in mutual funds is worth around Rs 500 crore (Rs billion), according to industry estimates. Reports have suggested that Securities and Exchange Board of India, which has already asked the mutual funds to furnish information regarding their investment patterns, is still learnt to be deciding on the best source of action to take on the issue. The confusion is around where to pin the responsibility.

Fund houses said that if the provident fund trustees, of their own volition, ask for a switch in their investments from gilt to equity schemes then fund houses usually comply with it.

"It is not the responsibility of the fund house to check whether the PFs are eligible to invest in equities or not," sources said.

However a few fund houses do ask for a board resolution sanctioning such investments but such instances are few and far between. If the switching has been done with the consent of the PF trustee or the express wishes of the PF trustee then there is nothing which can be done by the fund house, sources said.

Incidentally such switches are the norm, not only among the PF trustees but also among mutual funds which accommodate them.

While many of such provident fund trustee organisations are allowed to invest in mutual funds, fund houses made it clear that it is up to these organisations to clarify whether they fulfil the eligibility criteria.

"The fund house is not responsible for it," according to the chief executive officer of a fund house. There is another angle to it. Sometimes applications - whether to make fresh investment or switches - are made directly without going through a distributor.

In such a case since there is no intermediary involved there is no brokerage to be paid out. However brokerage may be paid to the investor, but with the special permission of the head of the fund house or the chief marketing officer. Fund houses have been known to have used this lure to incentivise PF trustees to switch their investments from gilts to equity schemes. Such expenses are usually covered under 'promotional expenses', knowledgeable sources said.