1. What is the role of MFD? The primary role of mutual fund distributors (MFDs) is to recommend to clients or prospective investors a curated list of mutual fund schemes based on the distributor’s assessment of the investor’s risk profile and the suitability of the product being recommended. They also aid the investor in making a choice and assist clients in executing mutual fund transactions. The MFD’s role also includes providing after-sales support to clients for non-financial service requests, such as: Nomination or change of bank account details. Updation of KYC. Reviewing the client’s mutual fund portfolio from time to time based on market conditions or scheme performance. Suggesting changes, if any, based on the investor’s investment goals. 2. Are MFDs permitted to provide any investment advice to their mutual fund clients while choosing MF schemes? MFDs are permitted to provide only incidental advice while recommending mutual fund schemes to aid the investor in making a choice. MFDs are not permitted to provide investment advice, unless they are registered with SEBI as Investment Advisers (IAs). Only SEBI-registered investment advisers (RIAs) are permitted to offer detailed financial planning and provide holistic investment advice. The term “Financial Planning” is defined in Regulation 2(h) of SEBI IA Regulations, 2013, and Regulation 2(l) defines “Investment Advice”, which includes financial planning. Therefore, MFDs are not permitted to undertake or offer Financial Planning to their mutual fund clients, or use the terms “Financial Planning” and “Financial Advice” in any advertisement, promotional or marketing material, or social media, unless they are registered with SEBI as IAs and have a “separately identifiable department or division” (SIDD). 3. What is incidental advice? Incidental advice means providing basic advice pertaining to and limited to the curated list of mutual fund schemes or products being recommended to the mutual fund investor. This advice is based on the investor’s investment goals and is intended to aid the investor in making a choice. It is based on the distributor’s assessment of the investor’s risk profile and the suitability of the recommended mutual fund scheme in relation to the investor’s investment goal. For clarity, incidental advice does not include providing detailed financial planning or offering holistic investment advice. 4. Can MFDs advise their clients on goal-based SIPs and/or lump-sum investments? Yes. MFDs may provide incidental advice to assist mutual fund clients in making specific goal-based investments, whether through SIPs or lump-sum investments, for specific goals such as: Holidays or travel to tourist destinations. Children’s education or marriage. Buying a house or vehicle. Such incidental advice or recommendations must be restricted to investments in mutual fund schemes only. 5. Is it mandatory or obligatory for an MFD to do the risk profiling of investors before recommending any scheme and keep a record of it for future reference? MFDs are obligated and required to conduct risk profiling of their clients. This helps them make an informed assessment of the client’s risk appetite, investment needs and objectives, and assess the suitability or appropriateness of the mutual fund product being recommended based on the investor’s investment goal. It is advisable for MFDs to maintain a proper record of each customer’s risk profile in a physical register or electronically, with proper backup, for ready reference. The record should be reviewed and updated periodically. 6. What is an “Execution Only” and an “Advisory” relationship? What is the difference between the two? Execution Only Relationship: This refers to a relationship or transaction in which the client independently decides, chooses and executes transactions in a mutual fund scheme without any involvement, incidental advice or recommendation from the concerned MFD. For example, an MFD may provide an online transaction platform through which mutual fund clients select a scheme and invest on their own. Advisory Relationship: This refers to a relationship or transaction in which the MFD provides basic or incidental advice to the client to help with scheme selection. The advice is based on the distributor’s assessment of the client’s risk profile and the suitability of the recommended scheme. 7. What are the obligations of the MFD in respect of an Execution Only Relationship or Execution Only Transactions, where the transaction does not involve any incidental advice from the MFD? If the MFD has reason to believe that an “Execution Only” transaction is not appropriate for the customer, the MFD must send a written communication to the investor about the non-suitability of the scheme. The communication must be duly acknowledged and accepted by the customer. The MFD should obtain confirmation from the customer that the transaction is “Execution Only”, notwithstanding the distributor’s advice about its inappropriateness. This confirmation must be preserved for inspection during audit or due diligence. 8. Are MFDs permitted to advertise their mutual fund agency or mutual fund distribution services to attract investors through social media, print media, outdoor hoardings, radio, TV, etc.? There is no restriction on MFDs advertising their firm or services through digital, electronic, print or other media. However, such advertisements must strictly comply with SEBI Regulations, AMFI Guidelines and the Code of Conduct for MFDs. MFDs should not attract investors by offering rebates, gifts, gift vouchers or other inducements. They should also refrain from offering “free advice” or a “free portfolio review”. MFDs should not offer financial planning or use terms such as “financial planning” or “financial planner” in their advertisements. 9. Are mutual fund distributors allowed to launch a YouTube channel or Instagram account to solicit business? Yes. Mutual fund distributors can launch a YouTube channel, but they should strictly refrain from making scheme-specific recommendations or performance claims about individual schemes. They may provide only educational content about investing in mutual funds. The primary purpose of an MFD’s YouTube channel should be to educate viewers about mutual funds, investment concepts and market dynamics, not to promote specific mutual fund schemes to solicit business. MFDs should avoid discussing past performance or making predictions about future returns of specific mutual fund schemes on their YouTube channel. All content on their YouTube channel must comply with the SEBI Mutual Funds Regulations and AMFI Guidelines and the Code of Conduct regarding mutual fund distribution and advertisements. MFDs must clearly disclose their affiliation as a mutual fund distributor, along with their ARN and any potential conflicts of interest. These points also apply to other social media platforms such as LinkedIn, Facebook, Instagram and X. 10. Why can’t MFDs give scheme-specific recommendations or comment on the performance of specific mutual fund schemes on their YouTube channel or any social media platform? What is the use of a YouTube channel or social media platform then? MFDs are required to assess the customer’s risk profile or risk appetite before deciding whether a scheme is suitable for recommendation. Giving scheme-specific recommendations to unknown viewers without knowing their risk profile or the suitability of the products is undesirable and would be in clear violation of the Code of Conduct for Mutual Fund Distributors and regulatory guidelines. Commenting on the performance of specific mutual fund schemes without appropriate disclosures or disclaimers, as required under SEBI Regulations, would violate the regulations and the Code of Conduct for MFDs and may lead to strict disciplinary action. 11. Can an MFD share any report comparing the performance of various mutual fund schemes with their clients? There is no restriction on MFDs sharing such reports with their clients. However, it is advisable to obtain performance reports from Fund Fact Sheets published by the Asset Management Companies (AMCs) or from reputed and reliable sources. 12. Can an MFD conduct a portfolio review for a mutual fund investor who is not an existing client of the MFD, but has made investments through another MFD or directly, and suggest changes? There is no restriction on MFDs providing such a service if the investor has approached the MFD and requested the MFD’s help or service. However, the MFD should strictly refrain from approaching or attracting investors by offering rebates, gifts, gift vouchers or other inducements, or by offering “free advice” or a “free portfolio review” to poach the clients of other distributors. 13. Are mutual fund distributors allowed to design and publish their own sales promotional and marketing material or advertisements? No. As stated in the Code of Conduct for Mutual Fund Distributors, MFDs must use marketing material provided to them by the AMCs. They must not design their own marketing material in respect of any scheme or display the name, logo or mark of any AMC or mutual fund, including on their websites, apps or social media platforms, without the prior written approval of the AMC. MFDs must obtain prior approval from the AMC before displaying or circulating any write-ups, articles, performance comparison reports or customised performance comparison reports that involve or mention a scheme name. 14. Can an MFD dealing in or offering services for multiple financial products, such as stockbroking, DP services, insurance and corporate deposits, have a single website or marketing brochure mentioning all investment products and services, including mutual funds? Yes. An MFD may have a common website or issue a common marketing brochure for all services offered by the entity, provided the entity complies with the relevant and applicable regulatory guidelines and clearly mentions its registered name and AMFI, SEBI or IRDA registration number. In addition, the MFD is required to display the tagline “AMFI-registered Mutual Fund Distributor” along with or below the name, in a clear and legible font of at least size 12, in all forms of printed communication. 15. Are MFDs required to maintain records of documents relating to their mutual fund clients? Yes. MFDs are expected to maintain adequate records relating to: The risk profile of their mutual fund clients. Product suitability. Consent or dissent of mutual fund clients in the case of Execution Only Transactions or Relationships. Correspondence with clients, particularly in respect of complaints from or about mutual fund clients. Such records may be maintained in physical or digital form. 16. What are the obligations of an MFD with respect to customer complaints? MFDs are expected to resolve customer complaints, keep proper track of them and help customers in resolving their complaints as a good practice. As per Clause 4(j) of the Code of Conduct, MFDs shall endeavour to resolve investor grievances or complaints arising out of marketing, sale and distribution activities and shall provide complete assistance to AMCs for the redressal of grievances or complaints. It is advisable for MFDs to maintain a register or record of customer complaints to track them and ensure satisfactory resolution. MFDs should be diligent and methodical in this regard. Such records may be maintained in a physical register or electronically, with proper backup. 17. Can an MFD launch a sales promotion campaign or contest for its sub-distributors? There is no restriction on MFDs launching a sales promotion campaign or contest for their sub-distributors, provided there is no mis-selling or churning by the sub-distributors to achieve the sales target. 18. Can an MFD reward sub-distributors for achieving sales targets in kind? As per Clause 10.1.12(b) of SEBI Master Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/74 dated May 19, 2023, mutual funds and AMCs shall adopt the full trail model of commission in all schemes. No upfront commission or upfronting of any trail commission may be paid, directly or indirectly, in cash or kind, through sponsorships or by any other route. In other words, incentives in any form other than trail commission are not permitted under the above regulatory guideline. Accordingly, MFDs can pay only trail commission to their sub-distributors. Such payment must be made only in monetary terms. 19. Can an MFD conduct training programmes for its sub-distributors at a tourist destination? MFDs may conduct training programmes for their sub-distributors within reasonable expenses at a location in India that is conveniently or centrally located from a logistical and cost perspective, and not at an exotic tourist destination. This requirement may be relaxed if a programme is being run by an MFD to recognise sub-distributors for performance across multiple regulated financial products, such as deposits, insurance, PMS, AIFs and broking, as part of a broader organisational process. In such cases, the MFD’s Compliance Officer must review and approve the programme to ensure that it does not lead to undue product bias or aggressive selling techniques for any mutual fund scheme by the participant.