New cadre of distributors
Also written New cadre distributors · Basic cadre of distributors · New cadre of mutual fund distributors · Postal agents as mutual fund distributors
A 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.
In plain language
SEBI wanted mutual funds sold in small towns and villages. That work needs people who already live there and are already trusted.
So in 2012 it opened a second door into distribution. A person from this new cadre can register with AMFI without becoming a full mutual fund distributor.
The bargain is easy to state. Entry is easier. In return, the list of schemes they may sell is short, and every scheme on it is meant to be simple.
Their exam is this one — the NISM Series V-B Mutual Fund Foundation paper. The full distributor clears Series V-A instead.
How it works
Who may be empanelled. The rule comes from SEBI circular CIR/IMD/DF/21/2012 dated 13 September 2012, and the workbook lists four kinds of person:
| # | Who |
|---|---|
| 1 | Postal agents |
| 2 | Retired government and semi-government officials, class III and above or equivalent, with service of at least 10 years |
| 3 | Retired bank officers with service of at least 10 years |
| 4 | Other similar persons — such as bank correspondents — as may be notified by AMFI or the AMC from time to time |
How they get in. Chapter 3 gives the route: clear the NISM-Series-V-B: Mutual Fund Foundation Certification Examination and register with AMFI under that particular category of distributors.
What they may sell. Only simple and performing schemes, and the workbook names five product types:
- Liquid or money market schemes
- Index schemes
- Diversified equity schemes
- Retirement benefit schemes having tax benefits
- Fixed Maturity Plans (FMPs)
The performance test. These products must have returns equal to or better than their scheme benchmark returns during each of the last three years — each year, not an average of the three.
Who decides which schemes qualify. Not the distributor. AMCs are required to publish a list of such simple and performing schemes on their websites, so the new cadre knows what it may distribute.
One relief on paperwork. The workbook's Chapter 6 footnote states that the new cadre of distributors are not required to comply with KYD or bio-metrics requirements. That footnote then breaks off mid-sentence in the stored text, so nothing further is claimed here.
A worked example
Mr Bhalchandra Kulkarni retires from a public sector bank in Latur after 31 years of service. He wants to earn something on the side and knows hundreds of depositors in the town. Names and amounts below are illustrative; the rules are the workbook's.
Does he qualify? Yes. He is a retired bank officer, and his service of 31 years clears the 10-year minimum. He clears the NISM Series V-B paper and registers with AMFI under the new cadre category.
What can he sell? A depositor, Mrs Latkar, has Rs 4,00,000 sitting idle for about four months. He may recommend a liquid or money market scheme — it is on the list of five.
Her son then asks about a credit risk fund yielding more. Mr Kulkarni must say no. A credit risk scheme is not one of the five, whatever its returns.
A scheme can drop off his list. He wants to recommend an index scheme whose returns for the last three years were 11.2 per cent, 9.8 per cent and 14.1 per cent against a benchmark of 11.0 per cent, 10.4 per cent and 13.6 per cent. The middle year falls short of the benchmark. The test is each of the last three years, so the scheme fails it. He checks the AMC's published list of simple and performing schemes and finds that scheme absent — exactly as the test predicts.
Why NISM asks about it
This is the title of Chapter 4 of the paper, which carries 6 per cent of the marks, and the cadre itself is introduced in Chapter 3 under the parties to a mutual fund. Chapter 4's first sample question is a straight recall of the permitted list — which of the following scheme categories is permitted to be distributed by the new cadre of distributors? — with index schemes the answer and all government securities schemes, credit risk schemes and arbitrage schemes the distractors. Expect also the 10-year service condition, the three-year benchmark test, and which NISM paper this cadre must clear.
Common exam traps
- Five product types only: liquid or money market, index, diversified equity, retirement benefit schemes with tax benefits, and FMPs. Credit risk, arbitrage and gilt schemes are not on the list.
- The service condition is 10 years, and for government and semi-government officials it is class III and above or equivalent.
- The benchmark test applies to each of the last three years, not to the three-year average.
- This cadre clears NISM Series V-B; a full mutual fund distributor clears Series V-A.
- The AMC publishes the list of simple and performing schemes. The distributor does not judge for itself which schemes are simple.
- The new cadre is exempt from KYD and bio-metrics, unlike the ordinary distributor who must complete Know Your Distributor.
- Bank correspondents are in only if notified by AMFI or the AMC — the fourth category is open-ended by design.
Check yourself
1.Which of the following scheme categories is permitted to be distributed by the new cadre of distributors?
- a)All Government Securities Schemes
- b)Index schemes
- c)Credit Risk Schemes
- d)Arbitrage Schemes
Show the answer
Answer: (b) Index schemes
These new cadre distributors can sell only simple and performing schemes. Such products include: 1. Liquid / money market schemes · 2. Index schemes · 3. Diversified equity schemes · 4. Retirement benefit schemes having tax benefits · 5. Fixed Maturity Plans (FMPs).
Government securities schemes, credit risk schemes and arbitrage schemes are not on the list.
And membership of the list is not enough by itself: these products should have returns equal to or better than their scheme benchmark returns during each of the last three years.
Note "each of the last three years" — not the three-year average.
Who the new cadre are: 1. Postal agents, 2. Retired government and semi-government officials (class III and above or equivalent) with a service of at least 10 years, 3. Retired bank officers with a service of at least 10 years, and 4. Other similar persons (such as bank correspondents) as may be notified by AMFI/AMC from time to time.
And how a distributor knows which schemes qualify: the Asset Management Companies (AMCs) are required to publish a list of such simple and performing schemes on their websites to enable the new cadre of distributors to distribute these schemes to their clients.
Why an index scheme belongs on a "simple" list: an index fund is also called a passive fund, since the fund manager need not actively manage the portfolio, which only mirrors the composition of the underlying index, and since the index fund tracks the underlying index, it becomes easy for an investor to understand and track the performance of the scheme.
2.For a scheme to be distributable by the new cadre, its returns must have been:
- a)Positive in each of the last three years
- b)Equal to or better than its scheme benchmark returns during each of the last three years
- c)Better than its benchmark on a three-year average basis
- d)In the top quartile of its category
Show the answer
Answer: (b) Equal to or better than its scheme benchmark returns during each of the last three years
These products should have returns equal to or better than their scheme benchmark returns during each of the last three years.
Three elements to note. The comparison is against the scheme benchmark, not against zero or against peers. The standard is equal to or better than — matching suffices. And it applies during each of the last three years, not on average.
Option C is the common misreading. A scheme that beat its benchmark heavily in one year and lagged in another might look good on a three-year average and still fail this test.
Option A sets the wrong yardstick — a debt fund returning 5% in a year when its benchmark returned 4% has beaten its benchmark, while an equity fund returning 8% against a benchmark of 15% has not, though both were positive.
And the type test applies alongside: these new cadre distributors can sell only simple and performing schemes, which are 1. Liquid / money market schemes · 2. Index schemes · 3. Diversified equity schemes · 4. Retirement benefit schemes having tax benefits · 5. Fixed Maturity Plans (FMPs).
Both limbs must be satisfied — a permitted type and the performance record.
The practical mechanism: the Asset Management Companies (AMCs) are required to publish a list of such simple and performing schemes on their websites to enable the new cadre of distributors to distribute these schemes to their clients.
So the distributor consults the AMC's published list rather than computing benchmark comparisons himself.
Where this is taught
Free preparation for NISM Series V-BRelated terms
- Index fundsA passive open ended scheme that replicates or tracks a specific index, investing at least 95 percent of total assets in that index's securities, bought and redeemed from the fund rather than on an exchange.
- AMFI Registration NumberThe registration number AMFI allots to a mutual fund distributor after NISM certification and KYD. It must be quoted on a client's Regular Plan transaction for commission to be paid.
- Fixed Maturity PlanA close-ended debt scheme whose portfolio maturity is aligned to the scheme's own maturity date, so the investor who stays to the end has a reasonably visible outcome — though never a guaranteed one.
- Life Cycle FundAn open-ended scheme with a target maturity date between 5 and 30 years, which follows a glide path across equity, debt and other assets — shifting away from equity as maturity approaches.
- Liquid fundAn open-ended debt scheme investing only in debt and money market securities maturing within 91 days — among the lowest-risk mutual funds, used to park short-term surplus money.
- Diversified equity fundAn equity scheme that invests across a wide spectrum of companies drawn from several industries, so that no single company and no single industry can sink the portfolio.
- 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.
- Know Your DistributorAMFI'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.
- Mutual fund distributorThe intermediary who assesses an investor's goals and resources and matches them to suitable schemes — distinct from the fund manager, who builds the portfolio from market analysis, not from the investor's situation.