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Following instructions from SEBI, AMFI has asked mutual funds distributors to remove undue indemnification clauses in agreement between MFDs and their clients.
This directive largely applies to large distributors—such as banks, national distributors and wealth outfits—that enter into agreements with clients before offering distribution services.
In a communication sent to distributors, one of the RTAs said, “As per SEBI’s letter (SEBI/HO/OW/IMD/SEC-Div3/P/2025/194/1 dated Jan 9, 2025), there are certain MFD agreements which unreasonably indemnify distributors for investment advice. SEBI has deemed this inappropriate and directed AMFI to ensure compliance by removal or modification of undue indemnification clauses in agreements between Mutual Fund Distributors (MFDs) and their mutual fund clients.”
SEBI found that one of the MFDs included this clause in its client agreement: If notwithstanding anything stated herein the bank or any employee of the bank gives any advice or representation to me/us, the bank shall have no liability for any such advice or representation made, as it will be my/our responsibility to make an independent assessment.
SEBI believes that such clauses are undesirable as they provide inappropriate indemnity to the distributor, even if they have provided advice to the investor regarding the scheme sold.
SEBI said, “AMFI is advised to take necessary action to ensure that this clause is suitably amended by the MFDs to remove any undue indemnification. Furthermore, AMFI shall sensitize its members to ensure that any similar clauses which may lead to undue indemnification to the distributor who are servicing mutual funds investors are also removed/suitably amended.”
