Fund Distribution and Channel Management Practices
Who distributes
Channels include individual mutual fund distributors (IFAs), corporate agents, banks, NBFCs, national distributors, online platforms, and fee-only Registered Investment Advisers. Distributors earn commissions from the AMC (upfront and trail); RIAs earn fees from the client. An entity cannot simultaneously act as a distributor earning commission and as an RIA in respect of the same client relationship - a favourite exam trap.
Direct vs regular
A direct plan has no distributor and therefore a lower expense ratio for the same portfolio; a regular plan carries the distributor commission inside its expense ratio. Returns of the regular plan are lower by roughly the commission differential.
Compliance toolkit
- ARN (AMFI Registration Number) is mandatory for soliciting; it must be renewed every 3 years.
- NISM Series V-A certification is a prerequisite; certification is valid for 3 years, after which re-certification applies.
- EUIN (Employee Unique Identification Number) must be quoted on every application where the distributor or any of its employees has advised on the transaction - this is how mis-selling is traced.
- KYD (Know Your Distributor) and KYC of the investor are mandatory.
- Code of conduct: no assured returns, no cash handling, no blank or pre-signed forms, no misleading comparisons, disclose commission when asked, maintain client confidentiality, do not rebate commission.
Traps
- Accepting cash or a cheque in the distributor's own name - the cheque must be drawn in the name of the scheme/AMC.
- Promising a fixed return or "capital protection" that the scheme does not offer.
- Assuming a higher commission is legitimate simply because it is disclosed.
Rule of thumb: every solicitation is traceable - ARN on the form, EUIN on the transaction.