Know Your Distributor
Also written KYD · Know Your Distributor (KYD) · KYD process
AMFI's verification process for mutual fund distributors — document verification plus a biometric impression of the right index finger, traditionally at a CAMS Point of Service — completed before ARN registration.
In plain language
Before you invest, you must complete KYC, which means Know Your Customer. KYD, Know Your Distributor, is the same kind of check on the person who sells to you.
SEBI wanted to streamline the way mutual funds are sold. As part of that drive, AMFI brought in KYD. It checks that the details in a distributor's registration papers are correct. It is also how ARN holders are verified.
KYD comes at a fixed step on the road to becoming a distributor. First, the person gets the NISM certification. Next, they complete KYD. Then they register with AMFI and get an AMFI Registration Number (ARN). After that, AMCs can take them on (empanel them).
In the past, KYD was done in person. It also needed biometric registration. AMFI has now moved towards a fully online, paperless, digital process.
One group does not need KYD at all. The new cadre of distributors is free from the KYD and biometric rules. They must still give proof of identity and address.
How it works
The process as the workbook sets it out:
| Step | What happens |
|---|---|
| Documents | Self-attested copy of PAN card and specified address proof submitted with the application form at a CAMS-PoS (Computer Age Management Services – Point of Service); originals presented for verification |
| Biometric | Impression of the index finger of the right hand of the ARN holder, taken at the PoS when documents are submitted — for new registrations and renewal of ARN. For non-individual distributors, taken from specified authorised persons |
| Acknowledgement | CAMS-PoS issues an acknowledgement confirming KYD completion |
| Existing ARN holders | Send a photocopy of the acknowledgement to all AMCs they are empanelled with |
| Digital route | KYD is now largely possible through full online, paperless, digital methods |
The new cadre exemption. New cadre distributors are not required to comply with KYD or biometrics, but must submit self-attested identity proof (photo PAN card, or for a proprietary concern the concern's or proprietor's PAN) and address proof as in the KYD application form.
Where KYD compliance is tested later.
- Transfer of AUM on a distributor's death: the nominee or legal heir must hold a valid ARN and be KYD compliant.
- Change of distributor code by the distributor (for example, on converting to a partnership or LLP): AUM can be transferred only to a valid ARN holder who is KYD compliant.
- AMFI's code for intermediaries requires intermediaries to comply with the KYD norms issued by AMFI.
The ARN itself: minimum age 18; individuals aged 50 or with 10 years' experience as of 31 May 2010 could obtain it without the exam after a prescribed CPE programme; employees of institutional distributors quote an EUIN instead of holding their own ARN.
A worked example
Sanjay, 29, from Indore, wants to become a mutual fund distributor. Here is his path, with the KYD step in context.
- Certification. He passes NISM Series V-A.
- KYD. He submits a self-attested PAN card copy and address proof at a CAMS-PoS, shows the originals, and gives a biometric impression of his right index finger. He receives an acknowledgement. (Alternatively, he completes it through AMFI's digital route.)
- ARN. He registers with AMFI and is allotted an ARN — he is over the minimum age of 18.
- Empanelment. He fills in each AMC's empanelment form, quoting his ARN and PAN.
Three years later his uncle, also a distributor with Rs 2.4 crore of AUM, dies. Sanjay is the nominee. To have that AUM transferred to his own ARN — and earn trail on it, say about Rs 1.6 lakh a year at 0.65 per cent — Sanjay's ARN must be valid and KYD compliant on the date of his request, his annual self-certification must be up to date, and he must inform all of his uncle's clients, who then have 15 days to object to the AMC. The AUM figure and trail rate are illustrative.
His friend Ritu instead joins as a new cadre distributor to sell simple schemes such as index funds in her town. She skips the KYD and biometric steps, but still submits identity and address proof.
Why NISM asks about it
Chapter 6 (Fund Distribution and Channel Management Practices), section 6.4, covers the pre-requisites to become a distributor — certification, KYD, ARN and empanelment — with the new cadre exemption in a footnote; section 6.9 applies KYD compliance to transfer of AUM; Chapter 10 includes KYD in AMFI's code for intermediaries. Expect questions on what the KYD process consists of, which finger is scanned, where it is done, and who is exempt.
Common exam traps
- KYD is AMFI's process — introduced as part of SEBI's drive, but run by AMFI.
- Documents plus biometrics — the right index finger, not the thumb or left hand.
- Done at a CAMS-PoS in the traditional process; now largely possible digitally.
- Order: NISM certification → KYD → ARN → empanelment.
- Applies to new registrations and renewals of ARN.
- New cadre distributors are exempt from KYD and biometrics, but not from identity and address proof.
- Existing ARN holders send the acknowledgement copy to every AMC they are empanelled with.
- KYD compliance is a condition for receiving transferred AUM.
Where this is taught
Free preparation for NISM Series V-DRelated terms
- AMFIThe Association of Mutual Funds in India — the association of all registered AMCs, which registers distributors through the ARN and sets codes of conduct, but is neither a regulator nor a self-regulatory organisation.
- Asset Management CompanyThe company that runs a mutual fund's schemes day to day — appointed by the sponsor or trustees with SEBI's approval, and paid a fee out of the scheme rather than a share of its profits.
- Direct and regular plansThe two routes into the same mutual fund scheme: a direct plan with no distributor and a lower expense ratio, and a regular plan that pays distributor commission — same portfolio, separate NAVs.
- Mutual fundA trust registered with SEBI that pools money from many investors and invests it in securities on their behalf — not a different product from shares and bonds, but a different way of owning them.
- Trail commissionThe commission an AMC pays a mutual fund distributor as a percentage of the current value of the investments they brought in, calculated daily and paid for as long as the investor stays invested.
- Cooling off periodThe 12 months after an investor-initiated change of distributor code in a folio, during which no trail is paid to either distributor; only afterwards may the AMC consider paying the new one.
- 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.
- Common Account NumberA single number allotted by MF Utilities under which an investor's mutual fund holdings across multiple AMCs are consolidated, so one form and one payment can cover several schemes.
- Self-businessA distributor's own investment in a scheme they are empanelled to sell — on which no commission is payable, since commission compensates for mobilising someone else's money, not one's own.
- New cadre of distributorsA limited class of mutual fund distributors SEBI allowed from 2012 — postal agents and retired government or bank officers among them — who may sell only five kinds of simple and performing schemes.