Execution only
A mutual fund transaction not booked as advisory. If the distributor believes it is not appropriate, it needs a written unsuitability notice acknowledged by the investor and the investor's prior written confirmation.
In plain language
Sometimes an investor wants a product the distributor would not recommend. The investor has the right to buy it; the distributor has a duty not to pretend it was advice.
Execution only is the category for that transaction. SEBI's due diligence framework recognises exactly two kinds of transaction — advisory and execution only — and states that there shall be no third categorisation of customer relationship or transaction.
Execution only does not mean "no questions asked". The workbook sets out what it still requires.
How it works
Chapter 6.8.2 — for transactions not booked as advisory:
- If the distributor has information to believe that the transaction is not appropriate for the customer, a written communication must be made to the investor regarding the unsuitability of the product. It must be duly acknowledged and accepted by the investor.
- A customer confirmation that the transaction is 'execution only' notwithstanding the advice of inappropriateness must be obtained prior to the execution of the transaction.
- On execution-only transactions, the customer is not required to pay the distributor anything other than the standard flat transaction charges.
Plus: when selling products of the distributor's own group or associates, the distributor must disclose the conflict of interest to the customer.
Records. AMFI's code for intermediaries requires those meeting SEBI's due diligence criteria to maintain the requisite documentation for advisory and execution-only services.
Stale figure. Point 3 refers to transaction charges, which SEBI withdrew by its 2025 circular; the workbook's own footnote says distributors are eligible only for trail commission, and upfront commission and transaction charges have been discontinued. Today the investor pays the distributor nothing at all; the distributor earns trail from the AMC.
Not an Execution Only Platform. The workbook separately mentions SEBI's circular of 13 June 2023 on Execution Only Platforms for digital and online distribution. That is a kind of platform; execution only here is a category of transaction.
A worked example
Rohit, 34, is categorised by his bank's mutual fund desk as a Moderate investor (the category is illustrative). He asks to put Rs 3,00,000 into a sectoral equity fund of the bank's own group AMC.
The relationship manager believes the fund is above his risk ceiling. The sequence the workbook requires:
| Step | Document |
|---|---|
| 1 | Written communication to Rohit that the product is unsuitable for him |
| 2 | Rohit acknowledges and accepts it |
| 3 | Rohit signs a confirmation that the transaction is execution only, despite the advice |
| 4 | Disclosure that the scheme belongs to the bank's group — a conflict of interest |
| 5 | Only then is the application executed |
If the manager executes first and collects Rohit's confirmation the next day, the rule is broken — the confirmation must come prior to execution.
What Rohit pays the bank: nothing. Under the workbook text of 6.8.2 he could have been asked for only the standard flat transaction charge, but those charges have since been withdrawn. The bank earns trail from the AMC on the regular plan — at an illustrative 0.90 percent, about Rs 2,700 a year on Rs 3,00,000.
Why NISM asks about it
Chapter 6.8.2 (Execution only) sits beside 6.8.1 (Advisory) and Box 6.8.3, and Chapter 10's AMFI code refers back to the documentation for "Advisory" or "Execution Only" services. Expect a question on what must be obtained before executing (written unsuitability communication, acknowledged, and a customer confirmation) and the statement that there is no third categorisation.
Common exam traps
- Execution only still needs paperwork where the distributor believes the product is inappropriate: a written unsuitability communication, acknowledged and accepted, and a written execution-only confirmation.
- The confirmation comes before execution, not after.
- Only two categories exist — advisory and execution only.
- Group or associate products need a conflict-of-interest disclosure in either category.
- "Standard flat transaction charges" is stale — transaction charges were withdrawn in 2025.
- Execution only (a transaction category) is not an Execution Only Platform (a digital distribution model under SEBI's June 2023 circular).
Where this is taught
Free preparation for NISM Series V-ARelated terms
- Mis-sellingSelling securities or securities services by knowingly making a false statement, hiding material facts or risk, or not taking reasonable care that the product suits the buyer — an unfair trade practice.
- Execution only platformA SEBI-recognised digital platform that carries out subscription, redemption and switch transactions in direct plans of mutual fund schemes only — registered with AMFI (Category 1) or as a stock broker (Category 2).
- AGNIAMFI Guidelines & Norms for Intermediaries — the code of conduct for agents, brokers, distribution houses and banks selling mutual funds, enforced by warning and then cancellation of AMFI registration.
- AppropriatenessThe standard for advisory mutual fund sales: selling only the product identified as best suited for investors within a defined upper ceiling of risk appetite, with no exception made.
- SuitabilityThe investment adviser's obligation under Regulation 17 to ensure that every piece of advice fits the client's documented risk profile, investment objectives and capacity to absorb loss.
- Full trail modelSEBI's rule that AMCs pay distributors only trail commission in all schemes — no upfront commission and no upfronting of trail, in cash or kind, through sponsorships or any other route.
- Investment adviserAny person who, for consideration, is in the business of giving investment advice, including anyone holding out as one — but not an AMFI-registered distributor whose advice is incidental to distribution.
- Institutional distributorsThe workbook's name for the largest non-individual mutual fund distributors — the distribution companies and the banks — which sell through salaried staff in a branch network rather than through one agent.