Fund Distribution and Channel Management — becoming a distributor and earning from it

Where this chapter sits

Chapter 6 carries 10% of the paper — the joint-largest weight in the syllabus. It is also the chapter about your own profession, so the rules here are the ones you will actually live by.

Three things dominate: the trail commission formula, the four disclosure and due diligence thresholds, and the advisory-versus-execution-only distinction.

6.1 What a distributor does

An investor needs to invest the money in a portfolio of various investment options to achieve financial goals... However, one may still need help in constructing a portfolio with the help of an expert. This expert could be a mutual fund distributor.

Two professionals stand between the investor and the portfolio — the distributor and the fund manager — and the workbook draws the line sharply.

The fund manager analyses various inputs and data points including the company specific or industry specific information, and economy wide factors... After such a detailed analysis, the fund manager constructs a portfolio of securities in line with the stated objective of the mutual fund scheme.

On the other hand, the mutual fund distributor's job is to assess the needs, limitations, resources and financial goals of the investor. This analysis would help the mutual fund distributor arrive at a suitable asset allocation plan for the investor. Armed with this, the distributor then goes on to identify mutual fund schemes, which are appropriate for the investor in the given situation.

The one-line summary, and it is examinable: the mutual fund distributor analyses the situation of the investor; whereas the fund manager analyses the market factors.

6.2 Kinds of distributor

Mutual funds are distributed in India to the investors through multiple channels, viz., individual mutual fund distributors, bank branches, national distributors through their branches or their sub-agents, post offices, and directly by the AMCs.

Note the last one — an AMC may distribute directly, which is what makes direct plans possible.

Individual players

India has a long history of distribution of financial products through individuals. Both Life Insurance Corporation of India Ltd (LIC), and Unit Trust of India (UTI) depended on a huge force of individual agents.

Almost all of them operated as individuals, and single-handedly, without any staff or skeleton staff, mainly to handle the paperwork. Even today, this is a very large part of the distribution link between the asset management companies and the investors. Quite a few new mutual fund distributors start their business this way – single-handedly, as individuals.

And the split: while the former is known as the "individual" channel, the rest can be called the "non-individual" channel.

The non-institutional models: through their own branch offices and employees or through a network of sub-agents.

Non-individual entities

Non-individual entities include partnerships, regional distributors, national distributors, NBFCs, banks, stockbrokers, etc. Out of these, the distribution companies and banks are sometimes referred as institutional distributors.

The economics differ between the two models: the investor is serviced by an individual—be it an employee of the firm or a sub-agent. However, the difference lies in the operations of the firm and its cost structure—the former incurs fixed expenses of running the large operations, whereas the latter have higher variable costs. The employees earn through salary, whereas the sub-agents earn a commission, which is linked to the business generated.

Employees are a fixed cost; sub-agents are a variable one.

Banks: banks have emerged as a prominent channel for the distribution of mutual fund products to their account holders. Within the banking structure, the multinational banks were the first to enter the business of mutual fund distribution. The private sector banks and the public-sector banks entered the business much later. Nowadays, even some cooperative banks are also distributing mutual funds.

Multinational banks first, then private and public sector, now some cooperative banks.

How banks segment: banks employ different business units catering to different client segments, viz., retail banking and wealth management or priority banking or private banking. The categorization is based on the wealth of the clients or the surplus available for investment in financial assets.

And the reach argument: mutual funds have built relationships with PSU banks that have a wide reach in non-urban centres to distribute mutual fund products through them.

Sub-agents at NBFCs and brokers: these sub-agents are not employees of the firm but purely work as an extended distribution arm. This is sometimes called an agency channel.

And the newest entrants: these are the e-commerce platforms and few other online distributors that also distribute mutual fund schemes. These players operate through the internet without having a physical office for the clients to visit. SEBI Circular dated 13 June 2023 provides the guidelines for Execution Only Platforms, relevant for digital/online platforms.

6.3 Modes of distribution

Traditionally, not just mutual funds, but all financial products were distributed through the use of application forms printed on paper. This process involved carrying physical forms to the client's place and then depositing those forms at the respective official points of acceptance (OPOAs).

Where things stand now: of late, the balance is shifting towards digital transactions, though the physical paper-based transactions continue in a significant way.

Three approaches coexist — paper, fully digital (e-commerce platforms, and online distributors operate entirely through the digital mode), and a hybrid mode, where some transactions take place digitally, some others happen physically.

Stock exchange platforms

SEBI has facilitated buying and selling of the units of open-ended mutual funds through the stock exchanges. Exchanges have developed mutual fund transaction engines for this purpose.

The rationale: the low cost and deeper reach of the stock exchange network enable an increased level of participation of retail investors in mutual funds.

And a compulsion: AMCs are required to list the units of close-ended and interval schemes on a stock exchange and the units of ETFs are also bought and sold in the stock exchange.

The two platforms: NSE's platform is called NMF II Platform. BSE's platform is the BSE StAR Mutual Funds Platform.

Aggregating platforms

MF Utilities (MFU) is a transaction aggregating platform that connects investors, RTAs, distributors, banks, AMCs and others.

What it gives distributors: a single point for time-stamping of transactions, document submission, paperless transaction facility, and login facility for their clients.

The Common Account Number: investors who register on the MFU are allotted a Common Account Number (CAN) under which all their mutual fund holdings are consolidated. Investors have to be KYC compliant to register for a CAN. If an investor is not already KYC compliant, then the MFU will facilitate KYC registration along with the allotment of 'CAN'.

The Common Transaction Form lets an investor transact in multiple schemes across participating mutual funds using a single form, submitted through a mutual fund distributor or to neutral Points of Service (PoS) and others irrespective of the RTA servicing the mutual fund. MFU allows a single payment for multiple subscriptions made under a single form.

On mapping and multiplicity: the existing mutual fund holding is mapped to the CAN based on PAN, holding pattern and other parameters. Investors may have multiple CANs based on the combination of holdings and mode of holding.

And one rule worth noting: the bank and nomination details provided to the MFU at the time of registering for the CAN will override the information provided in the folios.

MFCentral is a unified digital platform developed by India's largest registrars, CAMS and KFintech, under SEBI mandate, to act as a single-window portal for all mutual fund investments. It provides a consolidated view of holdings across different AMCs, enables digital service requests (like updating contact/bank details, nomination), and facilitates financial transactions.

The other digital routes

Apps by distributors — transaction facilities are now available on mobile devices –smartphones, feature phones, and tablet computers.

Electronic platforms created by the AMCs — web-based and mobile-based applications, and many AMCs also offer transaction facilities through SMS and WhatsApp. When an investor uses these platforms then they are dealing directly with the mutual fund.

New age investment platforms — technology-based platforms that allow investors to invest in mutual funds apart from other areas like stocks, bonds etc. Their features: the simplicity of investment without the hassle of too much paperwork plus its low cost. On many of these platforms, investors can buy direct plans of mutual funds too. Examples of these include Groww, Kuvera, Paytm money, Coin etc.

6.4 The four prerequisites

An Asset Management Company may appoint an individual, bank, non-banking finance company or distribution company as a distributor.

Note that immediately — distribution is not limited to individuals.

1. NISM certification

SEBI has mandated mutual fund distributors, agents or any persons employed or to be employed in the sale and/or distribution of mutual fund products, to have a valid certification from the National Institute of Securities Markets (NISM) by passing NISM Series-V-A: Mutual Fund Distributors Certification Examination. For certain categories of distributors... it is NISM V-B.

The CPE alternative: for persons who have attained the age of 50 years or who have at least 10 years of experience in the securities markets in the sale and/or distribution of mutual fund products as of May 31, 2010, can obtain the certification either by passing the NISM certification examination or qualifying for Continuing Professional Education (CPE) by obtaining such classroom credits as may be specified by NISM.

Two conditions, either of which suffices: age 50, or 10 years' experience — both measured as of May 31, 2010.

2. Know Your Distributor (KYD)

As part of SEBI's drive to streamline the distribution process of mutual fund products, AMFI has introduced the KYD process to verify the correctness of the information provided in the registration documents and to have verification of the ARN holders.

The process consists of document verification and a bio-metric process.

• Self-attested copy of the PAN card and specific documents as proof of address to be submitted along with application form at the CAMS-PoS (Computer Age Management Services-Points of Service). The original documents have to be presented for verification
• The bio-metric process consists of taking the impression of the index finger of the right hand of the ARN holder. For non-individuals, the bio-metric process will be conducted on specified authorized persons
• An acknowledgement confirming the completion of KYD process is received from the CAMS-PoS
• The existing ARN holders have to send the photocopy of the acknowledgement to all the AMCs with whom they are empaneled

And a note relevant to this examination: the new cadre of distributors are not required to comply with KYD/bio-metrics requirements. They must still submit self-attested copies of identity proof... and address proof, as mentioned in KYD application form.

KYD is now largely digital: while it was traditionally a physical, in-person verification process requiring biometric registration at a CAMS Point of Service (POS), AMFI has moved toward digital registration to streamline the process.

3. AMFI Registration Number

After obtaining the certification and completing KYD requirements, the next stage is to register with AMFI. On registration, AMFI allots an AMFI Registration Number (ARN).

The exemption route: individuals from the exempted category (i.e., who have attained the age of 50 years or have at least 10 years of experience as of May 31, 2010) can obtain the ARN without passing the certifying examination, provided they have attended the prescribed CPE program.

And a hard floor: minimum age for obtaining ARN is 18 years.

4. Empanelment with AMCs

Armed with the ARN No., the distributor/stock exchange broker can get empaneled with any number of AMCs. Alternatively, they can become agents of a distributor who is already empaneled with AMCs.

Empanelment with the AMC or enrolment as an agent of an empaneled distributor is compulsory to be able to sell mutual fund schemes and earn the commissions.

For institutions: institutions that are into the distribution of mutual funds need to register with AMFI. The employees of these institutions need to clear the NISM Series V-A... and obtain an Employee Unique Identification Number (EUIN) from AMFI.

And a point often misremembered: there is no separate ARN required for these employees since they operate under the ARN of the institution that they are working for.

The intermediary's duty: the Intermediaries have to ensure that the employees quote the EUIN in the Application Form for their client's investments.

What the empanelment form asks for

Personal information of applicant–Name of person, Age, Trade Name, Contact Information, ARN, PAN, Income tax category · names and contact information of key people handling sales and operations · business details, such as office area, number of branches, number of employees, geographical area covered, years of experience, number of investors, number of agents, fund houses already empanelled in, size of AUM · bank details and preferences regarding Direct Credit of brokerage · preferences regarding receiving information from the AMC · nominee.

The declaration the applicant signs commits him to:

• Correctness and completeness of information provided
• Commitment to keep all the transactional information confidential
• Commitment to abide by instructions given, as also statutory codes, guidelines and circulars
• Not to issue advertisement or publicity material other than that provided by the AMC or pre-approved by the AMC
• Ensure that the risk factors are mentioned along with performance and other related information
• Provide all the information and documents that the AMC may ask for
• Ensure that all employees who are engaged in selling or marketing of mutual funds have an EUIN
• Undertake not to rebate commission back to investors, or attract investors through the temptation of rebate/gifts, pass back of commission etc.
• Power to the AMC to terminate the empanelment at any time

No rebating, no gifts, no pass-back of commission. That undertaking is the ethical core of the form.

And a commercial reality: some AMCs directly empanel only distributors who are likely to generate adequate business – and request others to work under one or the other empanelled distributors. At times, AMCs link the levels of commission to the volumes generated. In such cases, an agent might find it beneficial to work under an established distributor.

There is no standard format — each asset management company use their own format for collecting such details.

6.5 How a distributor earns

The mutual fund distributor earns revenue in the form of commission income for the distribution of the mutual fund products/schemes in the manner specified by SEBI from time to time.

And what has been taken away: SEBI has withdrawn the benefits of upfront commission and transaction charges for the MFDs.

Mutual fund distributors receive commission on the investments mobilised by them under Regular Plan of MF schemes from the AMCs with whom they are empaneled. The trail commission is typically paid on monthly basis as per the commission structure decided by the respective AMCs as per their business policy.

The full trail model: AMCs shall adopt full trail model of commission in all schemes, without payment of any upfront commission or upfronting of any trail commission, directly or indirectly, in cash or kind, through sponsorships, or any other route.

Read the exclusions in that sentence — in cash or kind, through sponsorships, or any other route. The rule is comprehensive.

In other words, incentives in any other form to the distributor which is not in the form of trail commission is not permitted... In short, MFDs are paid only trail commission and, such trail commission can be paid only in monetary terms.

And the anti-mis-selling provision: in order to discourage mis-selling by mutual fund distributors, under Regulation 66(6) of SEBI MF Regulations 2026, SEBI has introduced a provision "the asset management company shall pay charges or commission or fees related to distribution of mutual fund schemes, and in the manner as may be specified by SEBI from time to time".

Trail commission

Trail commission is calculated as a percentage of the net assets attributable to the Units sold by the distributor. The commission payable is calculated on the daily balances and paid out periodically to the distributor as per the agreement entered into with AMC.

The formula:

Since the trail commission rate is mentioned as percent per annum, the same needs to be divided by 365 to arrive at the daily trail commission amount.

The workbook's example: a distributor mobilised a sum of Rs. 10 lakhs on a particular day when the scheme's NAV was Rs. 10.0000. The total units allotted were 1,00,000. At 1% p.a., the first day's commission is 10,00,000 × 1% ÷ 365 = ₹27.40, and over the month the total trail commission for the period: 853.13.

Why it grows with the market: since it is calculated on net assets, distributors benefit from increase in net assets arising out of valuation gains in the market.

The workbook's illustration: suppose an investor has bought 1000 units at Rs. 10 each... Later, suppose the NAV of the scheme goes up to Rs.15. Trail commission is payable on 1000 units × Rs 15 i.e., Rs 15,000 – not the Rs 10,000 mobilised. In short, trail commission depends on the NAV.

And it does not stop: unlike products like insurance, where agent commission is paid for a limited number of years, a mutual fund distributor is paid trail commission for as long as the investor's money is held in the fund.

Such indexing of agent commissions to the current value of the investment, and the absence of a time limitation to earning it, are unique benefits that make it attractive for distributors to sell mutual funds.

Two restrictions to remember:

No commission on your own money: the commission is payable to the distributors to mobilize money from their clients. Hence, no commission is payable to the distributor for their own investments (self-business).

Disclosure across competing schemes: regulations require distributors to disclose to their investors all commissions in the form of trail commissions or any other form payable to them from similar competing schemes of a different mutual fund from amongst which the particular scheme was recommended to the investor.

Additional commission for inclusion

SEBI has introduced a revised framework for paying additional commission to mutual fund distributors for mobilising investments from new investors. It aims to promote investor inclusion, especially among smaller towns and women investors.

Who counts as eligible:

(a) New individual investors (new PAN) from B-30 cities, at the mutual fund industry level; (b) New women individual investors (new PAN) from both Top 30 and B-30 cities.

The structure:

Where the money comes from: the additional distribution commission shall be paid from the 2 basis points on daily net assets, mandated to be set apart annually by AMCs for investor education, awareness and financial inclusion initiatives, subject to adequate claw back provisions.

And it is on top: the additional commission specified by SEBI shall be in addition to the existing trail commission paid to the distributor from the scheme.

No double-dipping: distributors shall be eligible to receive the additional commission for mobilizing investments from new women investors from Top-30 cities and in cases where the commission for new investment from B-30 cities has not been claimed for the same woman investor/investment. Dual incentives for the same investor/investment shall not be permitted.

Transaction charges — withdrawn

SEBI earlier permitted mutual fund distributors to receive transaction charges for subscriptions of ₹10,000 and above, deducted from the investor's investment amount. However, as per SEBI's circular issued in 2025, this transaction charges framework has been withdrawn.

What has gone: the investor-borne transaction charges and the requirement for investors to pay upfront commissions to distributors.

Who pays instead: distributors will be compensated directly by Asset Management Companies (AMCs), in line with SEBI's view that distributors act as agents of AMCs. No charges will be deducted from investor contributions.

One narrow exception: however, upfronting of trail commission is allowed only in case of inflows through Systematic Investment Plans (SIPs).

GST

The Goods and Services Tax (GST) was implemented in July 2017 and is applicable to individuals supplying goods or services with an annual turnover exceeding Rs. 20 lakhs.

Typically, the supplier pays GST, but for certain goods/services, the recipient must pay under the reverse charge mechanism.

For mutual fund distributors registered with GST, they must raise an invoice for their commission and pay GST. But under Section 9(4) of the CGST Act and Section 5(4) of the IGST Act, recipients are liable to pay GST on purchases from unregistered suppliers through the reverse charge. Hence, Asset Management Companies (AMCs) or mutual funds must pay GST under reverse charge on commissions to unregistered distributors.

The two-tranche payout framework: basic Expense Ratio (BER) shall exclude all statutory and regulatory levies. Commission payments shall henceforth be in two components/tranches:

1. Base commission (exclusive of GST): to be paid to both registered and unregistered distributors; 2. GST component: GST shall be paid only to registered distributors, subject to submission of a valid tax invoice. Since unregistered distributors are not liable to charge GST, no GST shall be payable to them.

6.6 Commission disclosure — the four thresholds

SEBI has mandated Mutual Funds/AMCs to disclose on their respective websites the total commission and expenses paid to distributors who satisfy one or more of the following conditions with respect to non-institutional (retail and HNI) investors:

i. Multiple points of presence (More than 20 locations) ii. AUM raised over Rs. 100 crores across the industry in the non-institutional category but including high net worth individuals (HNIs) iii. The commission received of over Rs. 1 crore p.a. across industry iv. The commission received of over Rs. 50 lakhs from a single Mutual Fund/AMC

Learn these four: 20 locations · ₹100 crore AUM · ₹1 crore commission across industry · ₹50 lakh from one AMC.

And they go to AMFI too: Mutual Funds/AMCs shall also submit the above data to AMFI. AMFI shall disclose the consolidated data in this regard on its website.

Further yearly disclosures: distributor-wise gross inflows (indicating whether the distributor is an associate or group company of the sponsor(s) of the mutual fund), net inflows, average assets under management and ratio of AUM to gross inflows on their respective website on a yearly basis.

The turnover trigger: in case the data indicates that a distributor has an excessive portfolio turnover ratio, i.e., more than two times the industry average, AMCs conduct an additional due diligence of such distributors.

6.7 Due diligence by AMCs

SEBI has mandated AMCs to put in place a due diligence process to regulate distributors who qualify any one of the following criteria:

a. Multiple point presence (More than 20 locations) b. AUM raised over Rs. 100 crores across the industry in the non-institutional category but including high net worth individuals (HNIs) c. The commission received of over Rs. 1 Crore p.a. across industry d. The commission received of over Rs. 50 Lakhs from a single mutual fund

The same four thresholds serve both disclosure and due diligence.

6.8 Distributor versus investment adviser

An investment advisor means any person, who for consideration, is engaged in the business of providing investment advice to clients or other persons or group of persons and includes any person who holds out himself as an investment adviser, by whatever name called.

But: it excludes any distributor of mutual funds who is registered with an association of asset management companies of mutual funds, providing any investment advice to its clients incidental to its primary activity.

Two consequences: a distributor cannot call themselves an investment advisor. And an investment advisor cannot earn both from advisory as well as distribution commission so this needs to be known as both the activities need to be separated.

Also: the advice offered by mutual fund distributors is incidental to the business of fund distribution, and hence the distributors cannot project themselves as investment advisors or financial planners.

The two categories of transaction

Advisory. This refers to a service where a distributor represents to offer advice while distributing the product, it will be subject to the principle of 'appropriateness' of products to that customer category. Appropriateness is defined as selling only that product that is identified as best suited for investors within a defined upper ceiling of risk appetite. No exception shall be made.

Execution only. In case of transactions that are not booked as 'advisory', it shall still require:

i. If the distributor has information to believe that the transaction is not appropriate for the customer, a written communication be made to the investor regarding the unsuitability of the product. The communication shall have to be duly acknowledged and accepted by investor.

ii. A customer confirmation to the effect that the transaction is 'execution only' notwithstanding the advice of inappropriateness from that distributor be obtained prior to the execution of the transaction.

iii. That on all such 'execution only' transactions, the customer is not required to pay the distributor anything other than the standard flat transaction charges.

And the hard rule: there shall be no third categorization of customer relationship/transaction.

Plus a conflict disclosure: while selling mutual fund products of the distributors' group/associates, the distributor shall make disclosure to the customer regarding the conflict of interest arising from the distributor selling such products.

Compliance and other due diligence

Compliance and risk management functions of the distributor shall include a review of defined management processes for: i. the criteria to be used in review of products and the periodicity of such review. ii. the factors to be included in determining the risk appetite of the customer and the investment categorization and periodicity of such review.

Other kinds of due diligence performed are:

i. Review of transactions, exceptions identification, escalation and resolution process by internal audit. ii. Recruitment, training, certification and performance review of all personnel engaged in this business. iii. Customer on-boarding and relationship management process, servicing standards, enquiry/grievance handling mechanism. iv. Internal/external audit processes, their comments/observations as it relates to MF distribution business. v. Findings of ongoing review from a sample survey of investors.

Mis-selling

SEBI Investor Adviser Regulations, 2013 exempt distributors of mutual funds from registration as investment advisers, so long as the distributor is providing any investment advice to one's clients incidental to the primary activity of distribution of funds.

In both cases, however, the common thing for the mutual fund distributor is to see whether the product is suitable for the client or not. No third categorization of customer relationships or transactions is allowed. The distributor must perform an analysis of suitability.

Ensuring suitability is also a part of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) 2003. The regulation defines mis-selling in units of mutual fund schemes as any of the below:

1. Making a false or misleading statement, or 2. Concealing or omitting material facts of the scheme, or 3. Concealing the associated risk factors of the scheme, or 4. Not taking reasonable care to ensure the suitability of the scheme to the buyer.

Four limbs, and the fourth is the one a well-meaning distributor is most likely to fall foul of.

6.9 Nomination for distributors

The livelihood of a large number of mutual fund distributors (self-employed individuals) depends on the commission income primarily the trail commission... In case of the death of a mutual fund distributor (MFD), there would be a loss of income for his/her family.

Therefore, to provide protection against loss of income to the mutual fund distributor's family, AMFI has advised its members (AMCs) to offer nomination facility to the AMFI registered mutual fund distributors, as a uniform practice across the industry to enable the nominee to receive a commission. The AMCs provide nomination facility to the mutual fund distributors at the time of empanelment.

Who receives: commissions are paid to the nominees or legal heirs (where no nominee is registered) of the deceased MFDs. The AMCs may require the legal heirs to produce necessary documents evidencing legal heirship/succession where nomination is not registered.

For how long: such commission shall be payable till such time the ARN code of the deceased agent/distributor is not changed by the investor. And commission can be paid to the nominee till AUM under the ARN of the deceased ARN holder becomes nil.

But the business is frozen: no new business is permitted under the ARN code of the deceased MFD. Also, no new systematic transactions or changes to existing systematic transactions can be registered under the ARN code of the deceased MFD.

The key rules:

• A nominee/legal heir need not be an ARN holder to claim and receive the commission
• Commission can be paid to the nominee/legal heir only for those assets which were procured by the deceased MFD during the validity of his ARN prior to his/her demise
• ARN of the deceased agent/distributor should be valid on the date of demise... and commission payment/ARN should not have been suspended by AMFI... at the time of the demise
• The future expiry of the ARN of the deceased agent/distributor post his demise is not taken into account for continued payment of... trail commission
• The nominee shall receive the commissions only as trustee for the legal heirs of the deceased MFD
• Nominees or legal heirs are not allowed to transfer the assets to his/her account unless a specific request is received from the investors in this regard. Where such a request comes, the assets can be transferred provided the nominee or legal heir is a valid ARN Holder

Notification: nominee/legal heir of the ARN holder are required to intimate AMFI about demise of ARN holder along with a true copy of death certificate duly attested by Gazette Officer. On receipt of such intimation, AMFI will intimate all AMCs about the demise of the ARN holder. However, this is not applicable for Overseas Distributors.

For a transfer of the deceased's AUM, the nominee or legal heir must: have a valid ARN as on the date of request for transfer of AUM, be KYD compliant, have submitted his/her annual declaration(s) of self-certification, and not have an ARN suspended by AMFI for any reason whatsoever.

And the clients must be told: the nominee or legal heir must inform all clients via letter or email about the proposed change in the ARN code. Investors have 15 days from the date of this communication to raise any objections directly with the respective Asset Management Company (AMC).

6.10 Change of distributor

While the trail commission is payable to the distributor for mobilisation of money from the investors, the other purpose of the same is also to ensure that the investor continues to receive regular updates and various services from the distributor.

However, the mutual fund industry allows the investor to change the distributor, without specifying any reason.

The anti-poaching rule: in order to remove any possibility of any wrongdoing, e.g., inducing or forcing the investor to request a change of distributor code in the folio, the industry has taken a decision. In case of a change of distributor code in a folio, no commission would be payable to any distributor, neither the old one nor the new one.

Neither the old nor the new. That is the whole deterrent.

With a cooling-off: in respect of change of distributor/ARN code initiated by the investor, the AMCs may consider making payment of trail commission to the transferee distributor after a cooling off period of twelve (12) months from the date of change of distributor code in the Unitholder database.

No NOC required: investors can choose to change their distributor or go direct. This needs to be done through a written request by the investor. In such cases, AMCs will need to comply, without insisting on any kind of 'No Objection Certificate' from the existing distributor.

The balance being struck: while the investor reserves the right to change the distributor, a distributor is discouraged to lure a client to change the code.

The exception for a retiring distributor: if a distributor has opted for voluntary cessation of business, the investor should not be left in the lurch. Hence, if the change of distributor code is initiated by the investor on account of voluntary cessation of business by the distributor, the new distributor would get the trail commission as per the guidelines specified by SEBI or AMFI from time to time.

When a distributor may initiate the change

A distributor can initiate a change in the distributor code in the folios of one's clients on account of any of the following:

• Change in the name/legal status of the distributor (such as an individual MF distributor converting his MF distribution business to a partnership firm, a partnership firm converting itself into Limited Liability Partnership (LLP), a private limited company converting itself into a public limited company or vice versa
• Merger/acquisition/consolidation/transfer of business/new code acquired within the same group in case of non-individual distributors
• Transfer of AUM consolidation initiative within the same family/close relatives in case of individual distributors
• Transfer of business by individual distributors

And the closing rule: in no other circumstances, such a change would be allowed.

The conditions on any transfer: the transfer of AUM can happen only if the entire AUM is getting transferred from the existing distributor, and only in the name of a valid ARN holder, who is KYD compliant. The old ARN has to be surrendered and no further business can be done under that ARN, once the AUM transfer is complete.

All or nothing, to a valid KYD-compliant ARN holder, and the old ARN is surrendered.