AMFI Code of Conduct for Mutual Fund Distributors (April 2022)

Code of Conduct for Mutual Fund Distributors

I. Purpose and Scope of the Code

  1. This Code of Conduct (“Code”) requires Mutual Fund Distributors to demonstrate the core values of being a fiduciary by establishing professional standards in their dealings with the investors, Asset Management Companies (“AMCs”), and other distributors so as to exemplify the values of transparency, competency, fairness, integrity and thereby seek to inspire and maintain trustworthiness in the profession of distribution of Mutual Fund schemes.
  2. 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 AMFI Registration Number (“ARN”) (referred to as “MFDs” in this Code) and is binding on all the Directors/partners, members, sub-distributors, employees and representatives of the MFDs (collectively referred to as “Representatives” in this Code). The term “MFDs” is deemed to include the sales personnel of the MFDs engaged in marketing, sale and distribution of mutual fund products.

II. Obligations of the MFDs

Fiduciary Duty

  1. MFDs must consider investor’s interest as paramount and exercise due diligence, take proper care and exercise independent professional judgment in the best interest of the investor.
  2. 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. Further, while selling Mutual Fund products of their group/affiliate/associates, MFDs shall make appropriate disclosures to the investors regarding the conflict of interest arising from distribution of such Mutual Fund scheme.
  3. MFDs shall ensure that financial incentive should not form the basis for recommending any particular scheme or transaction to any investor. MFDs shall promote a culture of ethics and integrity within the organization, so as to dissuade unfair practices, conflicts, aggressive sales tactics and other inappropriate conduct directed to achieve sales targets in disregard of its fiduciary duty of care, diligence and loyalty.
  4. MFDs shall not rebate or pass-back commission to investors and shall refrain from attracting investors through inducement of rebate or gifts / gift-vouchers etc.
  5. MFDs shall not collude or undertake malpractices such as:
    • encouraging over transacting and churning of investments to earn higher commissions.
    • splitting applications to earn higher transaction charges / commissions.
    • participating in payment defaults (such as dishonoring of cheques) or diversion of funds.
    • making false claims for or participating in wrongful dividend / redemption payouts.
    • carrying out unethical practices such as churning, selling unsuitable products to clients, selling of units of schemes of any mutual fund, directly or indirectly, by making false or misleading statements, concealing or omitting material facts of the scheme, concealing the associated risk factors of the schemes, etc.

Compliance related obligations

  1. MFDs shall adhere to Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 and guidelines/circulars issued by SEBI and AMFI from time to time.
  2. MFDs shall comply with the Know Your Distributor (KYD) norms prescribed by AMFI and be diligent in attesting investor documents and performing In-Person Verification (IPV).
  3. MFDs should be conversant with Scheme Information Document (SID), Statement of Additional Information (SAI), and Key Information Memorandum (KIM), and explain key features and risks to investors.
  4. MFDs should seek client information about financial status, investment experience and objectives to assess suitability.
  5. MFDs shall ensure that their representatives have necessary education and experience.
  6. MFDs and representatives shall maintain confidentiality of information and not disclose it without proper authorization, except where required by law.
  7. MFDs shall adhere to data privacy agreements and ensure secure handling and timely deletion of data.
  8. MFDs shall ensure compliance of sub-distributors and verify valid ARN status.

Infrastructure, record keeping and related obligations

  1. MFDs should maintain adequate physical infrastructure for investor service support.
  2. MFDs should adopt digital infrastructure with cybersecurity safeguards.
  3. MFDs should maintain internal controls to detect and prevent mis-selling and fraud.
  4. MFDs should maintain proper records including KYC and investor communications.

Client related obligations

  1. MFDs shall provide full and updated scheme information and not withhold material facts.
  2. MFDs shall highlight risks and avoid misrepresentation or exaggeration.
  3. MFDs shall disclose commissions received or receivable.
  4. MFDs shall disclose affiliated mutual funds and inform clients about alternative options.
  5. MFDs must disclose association with AMCs where applicable.
  6. MFDs shall not deal in Direct Plans and must disclose commission structure on digital platforms.
  7. MFDs shall not assure returns or provide indicative returns.
  8. MFDs must clarify that mutual fund investments are subject to risk and not guaranteed.
  9. MFDs must ensure accurate and untampered application forms and proper EUIN usage.
  10. MFDs shall assist in resolving investor grievances.
  11. MFDs shall use only AMC-approved marketing material.
  12. MFDs shall highlight general and scheme-specific risks to investors.
  13. Comparisons must be fair and based on complete facts.

Other obligations

  1. MFDs must obtain NISM certification, AMFI registration, ARN and EUIN.
  2. MFDs shall ensure proper training of representatives.
  3. MFDs shall cooperate with AMCs, AMFI, SEBI and regulatory authorities.
  4. MFDs shall inform changes in status or details promptly.
  5. MFDs shall refund incentives subject to clawback.
  6. MFDs shall report misconduct by representatives.
  7. MFDs shall not use advisory titles unless registered as investment advisers and must clearly identify themselves as AMFI-registered Mutual Fund Distributors.

Obligations towards integrity of the Mutual Fund industry

  1. MFDs shall not engage in fraudulent or unfair trade practices and must maintain high integrity.
  2. MFDs shall avoid false or defamatory statements about AMCs, AMFI or other MFDs and ensure communications are factual and unbiased.