Model Code of Conduct

A distributor sells a Category III AIF to investors who are sophisticated, but still take real risk. What stops the distributor from cutting corners on disclosure? What stops it from chasing commission over suitability?

Every Distributor must write its own Internal Code of Conduct. It must share this with employees and with any outside service providers it uses. The workbook goes further still. It sets out a Model Code of Conduct for Category III AIF Distributors — a named list of 21 conduct points. Read it alongside the separate Code of Conduct already written into the SEBI (Alternative Investment Funds) Regulations. It does not replace that Code.

The Model Code's 21 points cover several themes:

• Regulatory compliance: adhering to SEBI's AIF Regulations and related circulars on distribution, marketing, benchmarking and investor reporting.
• Disclosure: being fully conversant with the PPM, disclosing material information including Hurdle Rate, Management Fees, Additional Returns, catch-up provisions and distribution commissions received.
• Suitability and honesty: considering investor interest and risk profiling, never letting commission drive a recommendation, never assuring returns, and never misrepresenting or exaggerating.
• Integrity: maintaining high standards of promptitude and fairness, and desisting from manipulative, fraudulent or deceptive practices.
• Confidentiality and compliance support: maintaining confidentiality of investor data, assisting with KYC, and providing documents to tax and enforcement authorities as required under law.
• Fair dealing with the market: abstaining from negative statements about competing Category III AIFs, and comparing funds only on a like-for-like basis.
• Disclosure on social media: prominently disclosing registered names and registration numbers on social media handles and at the start of relevant content.

The Code is enforced through Chapter 10's three sub-sections on fraudulent and unfair trade practices, conflicts of interest, and marketing activities detrimental to investors — each of which restates and applies specific points from the 21-point list.

Vasant Distributors, empanelled with a Category III AIF, is preparing to pitch the fund to a retired schoolteacher with a moderate risk appetite.

Applying the Model Code, Vasant Distributors: discloses the fund's 2% management fee and 20% incentive fee upfront; explains the fund's lock-in and Exit Load; declines to describe the fund's target returns as "assured"; and discloses that it will earn a 1% distribution commission on the investment.

When a colleague at a rival distribution firm suggests badmouthing a competing Category III AIF to win the client over, Vasant Distributors refuses — point xix of the Model Code specifically bars making negative statements about funds it does not represent, requiring any comparison to be between similar, comparable funds.

Chapter 10, section 10.4 (Code of Conduct), sets out the full 21-point Model Code of Conduct for Category III AIF Distributors, footnoted as read alongside SEBI's own AIF Regulations Code of Conduct. The chapter's three sub-sections — fraudulent and unfair trade practices, conflicts of interest, and detrimental marketing — apply specific points from the list. Expect a question asking which of a set of practices the Model Code prohibits, drawn directly from the 21 numbered points.

• This is a distributor-specific code for Category III AIFs — it is a different document from SEBI's general Code of Conduct for stock brokers, even though both share the phrase "code of conduct".
• The Model Code is read alongside the AIF Regulations' own Code of Conduct, not as a replacement for it — the footnote is explicit about this.
• Commission can never be the basis for a recommendation — point vii states this directly, and it recurs as the theme tying suitability, soft dollar arrangements and pass-backs together.
• The social media disclosure point (xxi) is dated 2026 in the workbook's footnote — a recent addition, worth remembering as current rather than assuming it is longstanding.