Mutual Fund Distributors – A Scenario Change!

The recently issued consultation paper by the Securities and Exchange Board of India (“SEBI”) on the ‘Amendments / Clarifications to the SEBI (Investment Advisers) Regulations, 2013’ (“Consultation Paper”) reveals that the securities market regulator has its eyes and ears set in any and all directions that it can connect to and which can affect its domain in any way, and, to this extent, one small step of SEBI can definitely turn out to be a giant leap for the securities market intermediaries.

The Consultation Paper, by recommending modifications to the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) seeks to address issues such as risk profiling norms, documentation, remuneration, advertising mode, etc. pertaining to investment advisers, and at the same time revisits the exempted categories of entities under the IA Regulations, one such category being mutual fund distributors (“MF distributors”).

Mutual Fund Distributors:

MF distributors, a permitted category of mutual fund intermediary, currently offer services to their investor clients of the following nature:

  • making investors aware about various schemes of mutual fund houses;
  • making investors understand the effectiveness of mutual fund schemes for investments as compared to other competitive products; and
  • helping investors in carrying out investment transactions relating to switching, redemption and guide them periodically on the performance of their investments.

The MF distributors need to comply with the Code of Conduct prescribed by SEBI while performing the above roles and responsibilities.

This is in addition to the certification that the MF distributor needs to obtain and the examination it needs to clear, prior to providing such services.

The key element in the role of a MF distributor is that it can perform various roles under the same entity.

What changes does the Consultation Paper recommend for MF Distributors?

Under the Consultation Paper, SEBI observes that the role of MF distributors in their current capacity is quite wide and merged into the same entity. This is not in line with the requirements applicable to an investment adviser, which needs to create segregation in terms of its advisory services and other activities and at the same time maintain an arm’s length distance between the two.

Additionally, given the current structure of MF distributors, the Consultation Paper states that MF distributors are managing the relationship at the both ends (i.e. mutual funds & investors) which raises issue of conflict of interests.


The Consultation Paper proposes that, going forward, MF distributors should not be permitted to provide basic or incidental advice in respect of mutual fund products except describing the product specification without making any product recommendations. For any incidental advice beyond that, the MF adviser will have to obtain an investment adviser registration.

Additionally, the investment adviser license will also be required where they intend to shift from commmission based model to fee based advisory model.

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