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Code for Intermediaries

The association has revealed its code of conduct

For a more investor-friendly mutual fund industry, market regulator, the Securities and Exchange Board of India (SEBI) had issued a circular that sought to reign-in recalcitrant mutual funds intermediaries over a host of wrongdoings.

To promote the SEBI objectives the Association Of Mutual Funds In India (AMFI) has revised its existing code of conduct.
SEBI had already issued quite a few orders to empower the investors through transparency in payment of commission and load structure, mandating distributors to disclose all the commissions payable to them from the various fund houses' competing schemes.

The code points are as under:

1. Take necessary steps to ensure that the clients’ interests are protected
2. Adhere to SEBI MF regulations and guidelines issued from time to time related to selling, distribution and advertising practices. 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.
3. Provide full and latest information of schemes to investors in the form of SID, performance reports, fact sheets, portfolio disclosures and brochures and recommend schemes appropriate to client’s situation and needs
4. Highlight the risk factors of each scheme, avoid misrepresentation and exaggeration and urge investors to go throiugh SID/KIM before deciding to make investments
5. Disclose to the investors all the material information including all the commissions (in the form of trail or any other mode) received for the different competing schemes of various MFs from amongst which the scheme is being recommended
6. Abstain from indicating or assuring returns in any type of scheme, unless the SID is explicit in this regard
7. Maintain necessary infrastructure to support the AMCs in maintaining high service standards to investors and ensure that critical operations such as forwarding forms and cheques to AMCs/registrars and dispatch of statement of account and redemption cheques to investors are done within the timeframe prescribed in the SID/SAI and SEBI MF regulations
8. Avoid colluding with clients in faulty business practices such as bouncing cheques, wrong claiming of dividend/redemption cheques etc.
9. Avoid commission driven malpractices, such as:
a) recommending inappropriate products solely because the intermediary is getting commissions therefrom
b) encouraging overtransacting and churning of MF investments to earn higher commissions, even if they mean higher transaction costs and tax for investors.
10. Avoid making negative statements about any AMC or scheme to ensure that comparisons if any, are made with similar and comparable products.
11. Ensure that all investor related statutory communications (such as changes in fundamental attributes, loads, , exit options and other material aspects) are sent to investors reliably and on time
12. Maintain confidentiality of all investor deals and transactions
13. When marketing various schemes, remember that a client’s interest and suitability to their financial needs is paramount and that extra commission or incentive earned should never form the basis for recommending a scheme to the client
14. Intermediaries will not rebate commission back to investors and avoid attracting clients through temptation of rebate/gifts etc.
15. A focus on financial planning and advisory services ensures correct selling and also reduces the trend towards investors asking for passback commission