3. Legal & Regulatory Environment
3.6 Appendix 2: Code of Conduct for Intermediaries
Code of Conduct for Intermediaries as specified in
AMFI Guidelines & Norms for Intermediaries (AGNI)
3.1 Take necessary steps to ensure that the clients’ interest is protected.
3.2 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.
3.3 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 for the client’s situation and needs.
3.4 Highlight risk factors of each scheme, avoid misrepresentation and exaggeration and urge investors to go through SID/KIM before deciding to make investments.
3.5 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
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amongst which the scheme is being recommended to the investors.3.6 Abstain from indicating or assuring returns in any type of scheme, unless the SID is explicit in this regard.
3.7 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 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. Note SID should be read in conjunction with SAI and not in isolation.
3.8 Avoid colluding with clients in faulty business practices such as bouncing cheques, wrong claiming of dividend/ redemption cheques, etc.
3.9 Avoid commission driven malpractices such as:
(a) Recommending inappropriate products solely because the intermediary is getting higher commissions therefrom. (b) encouraging over transacting and churning of Mutual fund
investments to earn higher commissions, even if they mean higher transaction costs and tax for investors.
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3.10 Avoid making negative statements about any AMC or scheme and ensure that comparisons, if any, are made with similar and comparable products.
3.11 Ensure that all investor related statutory communications (such as changes in fundamental attributes, load, exit options and other material aspects) are sent to investors reliably and on time. Members and their key personnel, in the conduct of their business shall observe high standards of integrity and fairness in all dealings with investors, issuers, market intermediaries, other members and regulatory and other government authorities.
3.12 Maintain confidentiality of all investor deals and transactions. 3.13 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.
3.14 Intermediaries will not rebate commissions back to investors and avoid attracting clients through temptation of rebates / gifts etc. 3.15 A focus on financial planning and advisory services ensure correct
selling, and also reduces the trend towards investors asking for pass back of commission.
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3.16 All employees engaged in sales and marketing should obtainAMFI2
2 Since June 1, 2010 NISM-Series-V-A: Mutual Fund Distributors Certification Examination is the
mandatory examination for all for all persons involved in selling and distributing mutual funds including:
Certification. Employees in other functional areas should also be encouraged to obtain the same certification.
• Individual Mutual Fund Distributors
• Employees of organizations engaged in sales and distribution of Mutual Funds
• Employees of Asset Management Companies specially persons engaged in sales and distribution of Mutual Funds
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Exercise Multiple Choice Questions
1. SEBI regulates a. Mutual Funds b. Depositories
c. Registrar & Transfer Agents d. All the above
2. Investment objective defines the broad investment charter a. True
b. False
3. Statement of Account is to be sent to investors within ___ days of NFO closure
a. 3 b. 5 c. 7 d. 15
4. Within ___ days of dividend declaration, warrants will have to be sent to investors.
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a. 7b. 10 c. 15 d. 30
5. Unit holders can hold their units in demat form a. True
b. False Answers
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Checklist of Learning Points
SEBI regulates mutual funds, depositories, custodians and registrars & transfer agents in the country.
AMFI is an industry body, but not a self regulatory organization. The AMFI Code of Ethics sets out the standards of good practices to be followed by the Asset Management Companies in their operations and in their dealings with investors, intermediaries and the public.
AMFI has framed AGNI, a set of guidelines and code of conduct for intermediaries, consisting of individual agents, brokers, distribution houses and banks engaged in selling of mutual fund products.
Investment objective defines the broad investment charter. Investment policy describes in greater detail, the kind of portfolio that will be maintained. Investment strategies are decided on a day-tod-day basis by the senior management of the AMC. At least 65% of the corpus should, in the normal course, be invested in the kind of securities / sectors implied by the scheme’s name.
Statement of accounts is to be sent to investors within 5 days of closure of the NFO.
Investor can ask for a Unit Certificate for his Unit Holding. This is different from a Statement of Account.
NAV has to be published daily, in at least 2 newspapers
NAV and Re-purchase Price is to be updated in the website of AMFI and the mutual fund
The investor/s can appoint a nominee, who will be entitled to the Units in the event of the demise of the investor/s.
The investor can also pledge the units. This is normally done to offer security to a financier.
Dividend warrants have to be dispatched to investors within 30 days of declaration of the dividend
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Redemption / re-purchase cheques would need to be dispatched to investors within 10 working days from the date of receipt of request.Unit-holders have proportionate right to the beneficial ownership of the assets of the scheme.
Investors can choose to change their distributor or go direct. In such cases, AMCs will need to comply, without insisting on No Objection Certificate from the existing distributor.
Investors can choose to hold the Units in dematerialised form. The mutual fund / AMC is bound to co-ordinate with the RTA and Depository to facilitate this.
In the case of unit-holding in demat form, the demat statement given by the Depository Participant would be treated as compliance with the requirement of Statement of Account.
The mutual fund has to publish a complete statement of the scheme portfolio and the unaudited financial results, within 1 month from the close of each half year. In lieu of the advertisement, the mutual fund may choose to send the portfolio statement to all Unit-holders.
Debt-oriented, close-ended / interval, schemes /plans need to disclose their portfolio in their website every month, by the 3rd working day of the succeeding month.
Scheme-wise Annual Report, or an abridged summary has to be mailed to all unit-holders within 6 months of the close of the financial year.
The Annual Report of the AMC has to be displayed on the website of the mutual fund. The Scheme-wise Annual Report will mention that Unit-holders can ask for a copy of the AMC’s Annual Report. The trustees / AMC cannot make any change in the fundamental attributes of a scheme, unless the requisite processes have been complied. This includes option to dissenting unit-holders to exit at the prevailing Net Asset Value, without any exit load. This exit window has to be open for at least 30 days.
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The appointment of the AMC for a mutual fund can be terminated by a majority of the trustees or by 75% of the Unit-holders (in practice, Unit-holding) of the Scheme.
75% of the Unit-holders (in practice, Unit-holding) can pass a resolution to wind-up a scheme
If an investor feels that the trustees have not fulfilled their obligations, then he can file a suit against the trustees for breach of trust.
Under the law, a trust is a notional entity. Therefore, investors cannot sue the trust (but they can file suits against trustees, as seen above).
The principle of caveat emptor (let the buyer beware) applies to mutual fund investments.
The investor can claim his moneys from the scheme within 3 years. Payment will be based on prevailing NAV. If the investor claims the money after 3 years, then payment is based on the NAV at the end of 3 years
If a security that was written off earlier is now recovered, within 2 years of closure of the scheme, and if the amounts are substantial, then the amount is to be paid to the old investors. In other cases, the amount is to be transferred to the Investor Education Fund maintained by each mutual fund.
PAN No. and KYC documentation is compulsory for mutual fund investments. Only exception is micro-SIPs.
Investors need to give their bank account details along with the redemption request.
Adequate safeguards exist to protect the investors from the possibility of a scheme going bust.