VR Logo

SEBI Stops NOC Usage

The market regulator has made it possible for investors to switch distributors without their consent

The Securities and Exchange Board of India (SEBI) has removed a big hurdle that investors faced while dealing with mutual fund distributors. The market regulator has made it possible for investors to shift from one distributor to another without hindrance.

Earlier, even if an investor was not satisfied with the services of a distributor he/she could not leave as rules required that they first get a no objection certificate (NOC) from their current distributor. Understandably, almost all distributors would be reluctant to do so and that meant, investors' fortunes were tied to their distributor. The only approach open to them was to exit the market entirely.

SEBI has now issued a circular to all asset management companies (AMCs) that they should not compel investors to obtain NOCs from their existing distributors.

In fact, the Association of Mutual Funds of India (AMFI) had asked AMCs in 2007 to go by what the investors wanted, if they sought to leave their distributor, but this was not being followed, forcing the SEBI to step in.