Code of Conduct for Intermediaries of Mutual Funds
Summary
The circular mandates that mutual fund intermediaries strictly adhere to the revised Code of Conduct issued by AMFI. It requires intermediaries to disclose all commissions and prioritize investor interests over personal incentives. Non-compliance results in reporting to AMFI and SEBI, and mutual funds are prohibited from dealing with non-compliant intermediaries.
Text
It is advised that all intermediaries of mutual funds units shall follow the code of conduct strictly. If any intermediary does not comply with the code of conduct, the mutual fund shall report it to AMFI and SEBI. No mutual fund shall deal with those intermediaries who do not follow code of conduct.
Take necessary steps to ensure that the clients’ interest is protected.
Adhere to SEBI Mutual Fund 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 the operational requirements of various schemes.
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 for the client’s situation and needs.
Highlight risk factors of each scheme, avoid misrepresentation and exaggeration and urge investors to go through SID/ KIM before deciding to make investments.
Disclose to the investors all material information including all the commissions (in the form of trail or any other mode) received for the different competing schemes of various Mutual Funds from amongst which the scheme is being recommended to the investors.
Abstain from indicating or assuring returns in any type of scheme, unless the SID is explicit in this regard.
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 despatch of statement of account and redemption cheques to investors are done within the time frame prescribed in the SID/SAI and SEBI Mutual Fund Regulations.
Avoid colluding with clients in faulty business practices such as bouncing cheques, wrong claiming of dividend/redemption cheques, etc.
Avoid commission driven malpractices such as recommending inappropriate products solely because the intermediary is getting higher commissions therefrom; encouraging over transacting and churning of Mutual Fund investments to earn higher commissions, even if they mean higher transaction costs and tax for investors.
Avoid making negative statements about any AMC or scheme and ensure that comparisons if any, are made with similar and comparable products.
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.
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Source: SecMarx — Code of Conduct for Intermediaries of Mutual Funds. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.