Section 01
I. Purpose and Scope of the Code
This Code of Conduct requires Mutual Fund Distributors to demonstrate the core values of being a fiduciary by establishing professional standards in their dealings with investors, Asset Management Companies (AMCs), and other distributors so as to exemplify the values of transparency, competency, fairness and integrity, and thereby seek to inspire and maintain trustworthiness in the profession of distribution of Mutual Fund schemes.
This Code applies to all persons and entities who are registered with the Association of Mutual Funds in India (AMFI) as mutual fund distributors, i.e. holders of an AMFI Registration Number (ARN), and is binding on all Directors/partners, members, sub-distributors, employees and representatives of the MFDs. The term MFDs is deemed to include the sales personnel of the MFDs engaged in marketing, sale and distribution of mutual fund products.
Section 02
II. 1. Fiduciary Duty
MFDs must consider the investor's interest as paramount and exercise due diligence, take proper care and exercise independent professional judgment in the best interest of the investor.
MFDs should try to avoid conflict of interest as far as possible, and when it cannot be avoided, they shall ensure that appropriate disclosures are made to the investors, and that the investors are treated fairly. While selling Mutual Fund products of their group/affiliate/associates, MFDs shall make appropriate disclosures regarding the conflict of interest.
Financial incentive should not form the basis for recommending any particular scheme or transaction. MFDs shall promote a culture of ethics and integrity, so as to dissuade unfair practices, conflicts, aggressive sales tactics and other inappropriate conduct directed to achieve sales targets in disregard of fiduciary duty.
MFDs shall not rebate or pass-back commission to investors and shall refrain from attracting investors through inducement of rebate or gifts / gift-vouchers.
- Encouraging over-transacting and churning of investments to earn higher commissions.
- Splitting applications to earn higher transaction charges / commissions.
- Participating in payment defaults or diversion of funds.
- Making false claims for or participating in wrongful dividend / redemption payouts.
- Unethical practices such as churning, selling unsuitable products, making false or misleading statements, concealing material facts or associated risk factors.
Section 03
II. 2. Compliance related obligations
MFDs shall adhere to the SEBI (Mutual Funds) Regulations, 1996 and guidelines/circulars issued by SEBI and AMFI pertaining to distributors, selling, distribution and advertising practices. Performance disclosures should comply with SEBI requirements. MFDs must also adhere to restrictions under other SEBI Regulations as applicable, including segregation of distribution and advisory services under the SEBI (Investment Advisers) Regulations, 2013.
MFDs shall comply with Know Your Distributor (KYD) norms prescribed by AMFI and be diligent in attesting / certifying investor documents and performing In-Person Verification (IPV) for KYC.
MFDs should endeavour to be fully conversant with the key provisions of the Scheme Information Document (SID), Statement of Additional Information (SAI) and Key Information Memorandum (KIM), as well as operational requirements of various schemes, and should explain key features and risks to investors.
To assess suitability, MFDs should seek information from clients about their financial status, investment experience and investment objectives.
Representatives must have the necessary education and experience. Confidentiality of AMC and investor information must be maintained. Data must not be shared with group companies for cross marketing. MFDs shall comply with AMFI Data Sharing Principles and applicable personal data protection laws.
Principal MFDs should not engage or continue to engage a sub-distributor whose ARN is rendered invalid.
Section 04
II. 3. Infrastructure, record keeping and other related obligations
Physical infrastructure should support AMCs in maintaining high service standards, including forwarding or submission of forms and cheques to AMCs/RTAs.
Digital infrastructure should include adequate information technology and cyber security measures to maintain confidentiality of electronic data and to mitigate risks related to digital Mutual Fund transactions.
Internal control procedures and financial and operational systems should be reasonably expected to detect and prevent mis-selling and to mitigate financial loss from fraud, misconduct, theft or force majeure. Appropriate insurance coverage is encouraged.
Adequate records relating to clients, KYC, and correspondence on scheme or transaction suitability and investor consent/dissent should be maintained in physical or digital form as applicable.
Section 05
II. 4. Client related obligations
MFDs shall provide full and updated scheme information as provided by AMCs, including SAI, SID, addenda, performance reports, fact sheets, portfolio disclosures and brochures, and shall not withhold material facts.
Risk factors of each scheme shall be highlighted. MFDs shall desist from misrepresentation or exaggerated statements and shall urge investors to go through SAI/SID/KIM before investing.
All material information shall be disclosed, including commissions received or receivable in the form of trail commission or any other mode.
MFDs cannot deal in Direct Plans. On any digital platform provided by the MFD, it must be categorically disclosed that the scheme is of Regular Plan, which involves payment of commission to the MFD. A link for the rate of commission and a link to SID/SAI/KIM shall be prominently displayed.
MFDs shall not provide any indicative portfolio, indicative yield or indicative return, and shall abstain from indicating or assuring returns.
Mutual fund investments are not guaranteed or assured-return products. The principal amount may be exposed to risk of loss.
Application forms must be filled diligently with the investor's own accurate information. Contact details of representatives or third parties must not be filled in to pass off as the investor. EUIN of the concerned employee shall be written on application forms.
MFDs shall endeavour to resolve investor grievances arising out of marketing, sale and distribution activities and assist AMCs in redressal.
Only marketing material provided by AMCs shall be used. MFDs shall not design their own marketing materials in respect of any scheme or display the name, logo or mark of any AMC without prior written approval of the AMC.
Section 06
II. 5. Other obligations
Individual MFDs shall obtain NISM certification, register with AMFI, and obtain ARN and Employee Unique Identification Number (EUIN). Certifications shall be renewed on time. Non-individual MFDs shall ensure that sales personnel engaged in distribution hold a valid NISM certificate and AMFI registration / EUIN. A valid ARN and EUIN shall be quoted in the client's application / transaction feed in order to place transactions in Regular Plan and receive commissions.
Representatives shall undergo training on proper conduct, fiduciary obligations, fraud prevention, and responsible use of social media.
MFDs shall co-operate with AMCs, AMFI, SEBI and competent authorities, including providing copies of relevant investor documents when required.
Changes in status, constitution, address or contact details shall be promptly intimated to the AMC and AMFI.
Incentives subject to clawback shall be refunded to AMCs. Immediate written notice shall be given if a representative has committed an act amounting to moral turpitude, financial irregularities, or has been arrested, or whose employment has been terminated on such grounds.
Pursuant to Regulation 3(3) of the SEBI (Investment Advisers) Regulations, 2013, MFDs shall not use terms such as Adviser / Advisor / Financial Adviser / Investment Adviser / Wealth Adviser / Wealth Manager / Consultant, or any similar name, unless registered with SEBI as an Investment Adviser. Every MFD, while dealing in distribution of mutual fund schemes, should clearly specify that he or she is acting as an MFD. MFDs shall mention/display a tagline, “AMFI-registered Mutual Fund Distributor” along with / below their name, in a clear and legible font of at least font size 12, in all forms of printed communication, and shall display name and tagline in a clear and legible font in all forms of communication including website, mobile app, printed or electronic materials, business card and sign board.
Section 07
II. 6. Obligations towards integrity of the Mutual Fund industry
MFDs shall not indulge in fraudulent or unfair trade practices of any kind while marketing, selling or distributing any Mutual Fund scheme. MFDs and their Representatives must observe high standards of integrity and consistently conduct their dealings in a manner to uphold the professional image of the Mutual Fund industry.
MFDs shall refrain from making false or defamatory statements about any AMC, AMFI, Mutual Fund schemes or other MFDs in any private or public forum. Communication should be based on facts and presented in an unbiased manner so as not to mislead the public.
