Your MF Distributor May No Longer Provide Incidental Advice. Here’s Why…
Jan 04, 2017

Author: PersonalFN Content & Research Team

To become a mutual fund distributor, one has to acquire a National Institute of Securities Markets (NISM)-Series-V-A certification. As mentioned on the website of NISM, which is a SEBI established trust, the objective of the certification is to enhance the quality of sales, distribution and related support services in the mutual fund industry. It seems the syllabus of the course is insufficient for the candidate taking the exam to become a mutual fund advisor. 

The capital market regulator has made it clear that only registered investment advisors can offer advice on mutual funds.  In a discussion paper realised in October 2016, SEBI proposed to forbid mutual fund distributors from rendering any investment advice pertaining even to mutual funds. It also popped a question as to why not ban advising or offering trading tips on social media platforms or app-based massagers.

Now going one step ahead, SEBI is willing to create a new subcategory of the category of investment advisors—mutual fund investment advisors. The compliance requirements for such advisors would be less stringent.

Justifying the move, the SEBI official said, “Advising on the right mutual fund product is the job of a trained investment adviser, who does so against a fee from investors. Distributors are incentivized by the asset management companies or AMCs, which can lead to a conflict of interest.” 

If the proposal becomes a norm, it will throw out about 50,000 mutual fund distributors out of business, unless they fulfil the certification criterion and register themselves as investment advisors with SEBI.

Many experts fear that instead of this, acting as a motivator for mutual fund distributors to register themselves as advisors, this may dampen their spirit and many of them may want rethink their profession.

PersonalFN is of the view that, SEBI’s concern is genuine and its intent might be to curb malpractices that happen at the distributor’s level; but the approach it is resorting to may act as a dampener. Nobody is hinting that to promote NISM certifications, the SEBI is coming up with new sub-categories. But then the capital market regulator must also recognise that frequent regulatory changes may create uncertainty, and many honest mutual fund distributors may suffer because of that. You can’t punish all if there are a few crooks in the industry.

IS SEBI overregulating? If not, then there must be a consistency in regulations. The Patalganga campus of NISM has seen that by spending Rs 400 crores won’t bring much success if genuine people with high integrity go out of business fearing regulations and constant flip-flops.

So far, the SEBI has shown no signs of considering the requests of industry representatives including those made by the Association of Mutual Funds in India (AMFI) to review its proposals.

Surprisingly, there is no stringent measure to deter mutual fund houses from launching New Fund Offers (NFOs) that make little sense on most occasions.

Add Comments


Jan 05, 2017

Sir / Mam,

I am a direct mutual fund investor. What will happen to me if MF staff don't give any advice. I purely depend on the advice of AMC staff.

Kindly clarify.

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