Less than 200 mutual fund distributors will be affected by the AMFI’s latest best practices circular in which 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. Typically, investors lodge complaints with AMCs if they are not happy with the services of distributors. If found guilty on inspection, AMCs requests AMFI to take strict action against the distributor.
Currently, AMFI asks distributors to submit certificate of self-certification (DSC) every financial year. In these DSCs, distributors give in writing that they have followed code of conduct of AMFI in letter and spirit. For large distributors i.e. distributors who have a presence in more than 20 location or AUA of Rs.100 from individual investors or earn commission of Rs.1 crore and above a year or commission of Rs.50 lakh from a single fund house have to undergo due diligence. This is an additional layer of pecaution to ensure that distributors follow code of conduct.
According to the new norms, suspended distributors will not receive trail commission even on business accrued prior to the suspension of ARN. Also, all purchase, transaction, SIP, STP received under ARN code of a suspended distributor should be processed under direct plan perpetually.
