In its best practices circular issued recently, AMFI has asked fund houses to put incremental flows of investors coming through lumpsum, SIP and STP investments in direct plans if distributors’ ARN is suspended.
AMFI suspends ARN if they find distributors have breached the code of conduct. During suspension, distributors cannot market or sell any mutual fund schemes. Also, these distributors are not eligible to receive commission or incentive for the period of suspension.
Earlier, SEBI has observed instances where AMCs had continued to accept business from distributors who were suspended by AMFI.
Here are some key decision of AMFI on treatment of business received through suspended distributors:
- All commission payable and accrued on suspended ARN is forfeited. This means, distributors would not receive trail commission even on business accrued prior to the suspension of ARN
- All purchase, transaction, SIP, STP received under ARN code of a suspended distributor should be processed under direct plan perpetually
- However, if investors request AMCs to shift to regular plan under the ARN post revocation of suspension of ARN, AMCs will have to honour such a request
- All purchase, switch transaction, SIP, STP received through stock exchange platform such as BSE Star MF or NSE NMF II through a suspended distributor should be rejected as money pertaining to such transactions moves through broker pool account
If a distributor is permanently suspended, investors can either shift their entire corpus from regular plan to direct plan with capital gain tax implications or continue their existing investment under regular plan with new distributor of their choice
These changes have come into effect from October 31, 2019.
