World Investor Week Nov 22-28, 2021

Message from Chairman, SEBI

  Distributor Corner

 

Important Information for Mutual Fund Distributor

Become a Mutual Fund Distributor for a rewarding career!

 
One of the most rewarding careers in today’s financial services industry is that of independent Mutual Fund Distributor (MFD) – whether you would like to take it up as a full-time profession or as a part-time profession to earn extra income in your spare time and whether you are fresh graduate or a person who has retired from employment or a woman who chose to take a break in her career for the sake of family and now would like to resume working again but with flexible working hours and be your own boss ! What’s more, there’s no capital investment required to start your business as a Mutual Fund Distributor.
  1. How to become a Mutual Fund Distributor?
    2. As per SEBI regulations, any person/entity who wants to become a Mutual Fund Distributor is required to fulfil the following pre-requisites –
    1. pass ‘NISM Series V- A: Mutual Fund Distributors Certification Examination’ conducted by National Institute of Securities Markets (NISM) and
    2. register with AMFI and obtain AMFI Registration Number (ARN).

    In the above context, a non-individual entity applying for ARN should have at least one employee / sales personnel who has passed the above mentioned NISM examination and register with AMFI & obtained Employee Unique identification Number (EUIN), to be eligible for allotment of the ARN.
      
  2. NISM Series V-A : Mutual Fund Distributors Certification Examination:
    3. Before applying for AMFI Registration to obtain ARN or EUIN, the MFD / employee of the MFD needs to pass ‘NISM Series V- A : Mutual Fund Distributors Certification Examination’ and obtain NISM certificate. For detailed information about NISM Series V-A: MFD Certification Examination please visit: https://www.nism.ac.in/mutual-fund-distributors/ or www.nism.ac.inTo register for the aforesaid NISM certification examination, please visit: https://certifications.nism.ac.in/nismaol/Candidate/UserRegistration.aspx OR www.nism.ac.in
      
  3. Relaxation for persons under ‘Grandfathered’ Category
    4. As per regulation 4 (3) of SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, persons who, as on May 31, 2010 (the cut-off date), have either (a) attained the age of 50 years OR (b) have at least 10 years’ experience in the securities markets in the sale and/ or distribution of mutual fund products, have been given an option of obtaining the NISM certification either by passing the NISM certification examination or by obtaining classroom credits by attending a one-day CPE program conducted by NISM or its accredited CPE service providers. The persons referred to at (a) and (b) above are considered as ‘Grandfathered’ Category.
  1. How to become a Mutual Fund Distributor?
    2. As per SEBI regulations, any person/entity who wants to become a Mutual Fund Distributor is required to fulfil the following pre-requisites –
    1. pass ‘NISM Series V- A: Mutual Fund Distributors Certification Examination’ conducted by National Institute of Securities Markets (NISM) and
    2. register with AMFI and obtain AMFI Registration Number (ARN).

    In the above context, a non-individual entity applying for ARN should have at least one employee / sales personnel who has passed the above mentioned NISM examination and register with AMFI & obtained Employee Unique identification Number (EUIN), to be eligible for allotment of the ARN.
      
  2. NISM Series V-A : Mutual Fund Distributors Certification Examination:
    3. Before applying for AMFI Registration to obtain ARN or EUIN, the MFD / employee of the MFD needs to pass ‘NISM Series V- A : Mutual Fund Distributors Certification Examination’ and obtain NISM certificate. For detailed information about NISM Series V-A: MFD Certification Examination please visit: https://www.nism.ac.in/mutual-fund-distributors/ or www.nism.ac.inTo register for the aforesaid NISM certification examination, please visit: https://certifications.nism.ac.in/nismaol/Candidate/UserRegistration.aspx OR www.nism.ac.in
      
  3. Relaxation for persons under ‘Grandfathered’ Category
    4. As per regulation 4 (3) of SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, persons who, as on May 31, 2010 (the cut-off date), have either (a) attained the age of 50 years OR (b) have at least 10 years’ experience in the securities markets in the sale and/ or distribution of mutual fund products, have been given an option of obtaining the NISM certification either by passing the NISM certification examination or by obtaining classroom credits by attending a one-day CPE program conducted by NISM or its accredited CPE service providers. The persons referred to at (a) and (b) above are considered as ‘Grandfathered’ Category.

How to apply for AMFI Registration & obtain ARN or EUIN

 
Once a candidate has cleared the NISM Series V-A: MFD Certification Examination (or attended the one-day NISM Series V-A - CPE program, he/she needs to apply for AMFI Registration and obtain ARN or EUIN (as the case may be) by paying the applicable registration fees.
 
AMFI has engaged the services of Computer Age Management Services Ltd. (CAMS) to carry out AMFI the end-to-end activities w.r.t. granting ARN / EUIN and renewal thereof.
 
To apply for ARN/EUIN , please visit https://www.amfiindia.com/distributor-corner and click on “Online Registration” and follow the steps mentioned therein. Please note that to apply for ARN /EUIN online, the candidate needs to mandatorily have (i) PAN and (ii) Aadhaar
 
  1. Criteria & Documents required for applying for ARN:
    1. Individual applicant should be at least 18 years of age, and should have a valid NISM certificate for having passed NISM Series V- A: MFD Certification Examination, and also provide PAN and Aadhaar to complete the KYD and registration process.
    2. A non-individual entity applying for ARN should have at least one employee who has passed the above mentioned NISM examination and valid EUIN, to be eligible for allotment of the ARN. There are various documents required for different categories of the non-individual distributors, besides fulfilment of KYD by providing the PAN and Aadhaar of the designated officials/authorised person(s).
    3. For documents required and the fees applicable for various categories of distributors, please check ARN-EUIN Registration Fee Structure
      Documents required for various categories of distributors
    Notes:
    1. Individual MFDs are allotted EUIN along with the ARN automatically by default (without having to apply for EUIN separately and without any additional charges).
    2. The EUIN issued to an employee of a MFD is a unique /permanent identity number and would remain unchanged even if a person changes employment or quits a job and decides to be an independent MF distributor.
    3. In case of change of employment, the employee is required to submit a duly filled in prescribed Form for mapping EUIN to the ARN of the new employer, along with a copy of relieving letter issued by previous employer.
  2. KYD Process
    3. All mutual fund distributors are required to complete “Know Your Distributor” (KYD) process at the time of initial AMFI registration. In respect of non-individual ARN applicants, the KYD process is to be completed by the designated /authorised official / partner/ karta (if the applicant is a HUF) as the case may be.
     
    Previously, this involved document verification and Bio-metric process, for which the ARN applicant had to visit the nearest CAMS POS for completing the biometrics.
     
    Since July 2017, AMFI has enabled a completely paperless online ARN Registration process which is based on Aadhaar authentication, wherein the individual applicant’s identity / Aadhaar is authenticated with UIDAI by CAMS (since CAMS is registered with UIDAI as KYC User Agency). Since the biometric information verified by the UIDAI includes fingerprints of all ten fingers, iris scans of both the eyes, and a facial photograph, the need to conduct separate biometrics at CAMS’ POS has been eliminated in the online ARN Registration process based on Aadhaar authentication.
     
    Aadhaar has become the most important Officially Valid Document (OVD) for proof of identity as well as proof of address for KYC purposes. Currently for KYC status to be considered as “Validated”, the OVD data should have been validated with the issuing authority, i.e. UIDAI, PAN-Aadhaar linking done, and email and/or mobile is also validated. Further, it is now mandatory for individual taxpayers to link their PAN with Aadhaar.
     
    In view of the above factors, it has been decided to discontinue the physical biometrics process at CAMS POS for KYD compliance w.e.f. 01-Oct-2024 and make it mandatory for ARN applicants to either (i) provide Aadhaar and PAN; or (ii) have a “valid” KYC with the KRAs (i.e., KYC with “Validated” status) for the KYD purpose.
     
    As such, from 01-Oct-2024, it is compulsory for individual applicants to apply for AMFI registration (fresh ARN & EUIN) only via online mode to facilitate Aadhaar & PAN authentication online seamlessly and discontinue the paper-based process.
     
  3. Employee Unique identification Number (EUIN) & it’s Importance
    4. SEBI has mandated in the Master circular for Mutual Funds that AMFI shall assign a unique identity number to the employee/ relationship manager/ salesperson of the distributor interacting with the investors for the sale of mutual fund products, in addition to the ARN of the distributor. The EUIN shall be mentioned along with the ARN of the distributor in the application form / transaction feed. The EUIN helps in tracing and identifying the employee/ relationship manager/ salesperson of the distributor who has sourced the transaction in case of any complaint of mis selling / deficiency in service.
     
  4. EUIN Remediation (in case incorrect / invalid EUIN is mentioned):
    5. If the EUIN is not mentioned in the application form / electronic data feed (in case of online transactions) along with ARN / Sub distributor ARN code, the concerned distributor ( ARN holder) needs to remediate the same within 30 days from the date of the transaction either by providing the EUIN or submitting a declaration signed by the investor in a separate form that the EUIN has been intentionally left blank. In case the EUIN or the above declaration is not provided within 30 days, the commission payable on the relevant purchase transaction shall be forfeited permanently.
     
  5. Mandatory empanelment with the concerned AMC before doing any MF business
    6. Before doing any business for any mutual fund, the MFD needs to be necessarily / formally empaneled with the concerned AMC. Getting registered with AMFI and obtaining ARN does not automatically confer any right to the MFD to start selling mutual fund schemes of any mutual fund, unless and until the MFD is duly empaneled with the concerned AMC. Transactions received, if any, from / under the ARN of a non-empaneled MFD shall be processed under Direct Plan, in terms of AMFI circular no. 135/BP/ 107 /2023-24 dated May 04, 2023 (https://www.amfiindia.com/Themes/Theme1/downloads/circulars/AMFI_BP_Circular-107-dt.04-May-23.pdf )
     

Renewal of NISM Certificate & AMFI Registration (ARN & EUIN)

 
  1. How to renew NISM Certificate:
    2. The NISM Certificate is valid for three years and needs to be renewed before the expiry of validity. For information regarding NISM certificate renewal please visit https://www.nism.ac.in/frequently-asked-questions-mutual-fund-distributors/
  2. How to renew ARN / EUIN
    1. NISM certificate and ARN / EUIN are valid for 3 years and need to be renewed before the expiry of validity.
    2. The validity of ARN of individual MFDs and EUIN is co-terminus with the validity of NISM certificate.
    3. MFDs as well as their employees are required to apply for renewal of their AMFI registration (ARN / EUIN) before the expiry of validity of the ARN / EUIN, after renewing their NISM certificate, i.e., ARN or EUIN of an individual can be renewed only after the renewal of NISM certification.
    4. ARN and EUIN can be renewed up to 6 months prior to the expiry of ARN validity. In this regard, CAMS, sends reminders for renewal of ARN to the MFD via email on behalf of AMFI to the registered email address of the ARN/EUIN holders 6 months prior to expiry of validity.
    5. Renewal of ARN / EUIN needs to be mandatorily done online through AMFI website at https://www.amfiindia.com/distributor-corner - Online Renewal for individual as well as non-individual MFDs.
    6. If the renewal application is submitted prior to expiry of validity period of ARN/ EUIN and the same is found in order, there would be continuity in the validity period of ARN/ EUIN, post renewal.

    7. If the ARN renewal application issubmitted after the date of expiry of ARN validity, the ARN is renewed with effect from the date of submission ofthe renewal application (along with the applicable renewal fees), and shall bevalid up to the validity date mentioned on the NISM Certificate in case of individual distributors, andfor a further period of 3 years in case of non-individual distributors.

Appointment of Sub-Distributors

 
An MFD may engage sub-distributors and/or employees for sale and distribution of mutual fund products. All sub-distributors and employees are mandatorily required to (i) pass ‘NISM Series V- A: Mutual Fund Distributors Certification Examination’ conducted by NISM and (ii) register with AMFI and obtain ARN and/or EUIN, as the case may be. Further, all sub-distributors and employees of a MFD are required to mandatorily abide by all applicable SEBI regulations, AMFI Guidelines, including the Code of Conduct for Mutual Fund Distributors.

Code of Conduct for Mutual Funds Distributors

 
MFDs are governed by the SEBI Mutual Fund Regulations and the circulars issued thereunder, and need to abide by AMFI Code of Conduct for Mutual Funds Distributors which is available on AMFI website and the guidelines and circulars issued by AMFI from time to time.
 
As per SEBI regulations, it is mandatory for the MFDs to abide by the AMFI Code of Conduct for Mutual Fund Distributors.

Submission of annual Declaration of Self-Certification (DSC) to confirm compliance with Code of Conduct

 
As per SEBI regulations every Mutual fund/AMC is required to monitor the activities of their empanelled agents/distributors to ensure compliance of regulatory guidelines and code of conduct by them. In case of any violation of Code of Conduct by any empanelled MFD, the concerned Mutual fund/AMC is required to report the same to AMFI and SEBI.
 
In this context, every ARN holder is required to submit a Declaration of Self-Certification (DSC) annually in a prescribed format within three months after each financial year, certifying that she/he/they have adhered to the Code of Conduct for Mutual Fund.
 
If the annual DSC for the year is not submitted by the end of Q1, the commission accrued from 1st July is withheld until the DSC is submitted. If the DSC is not submitted by 30th September, the commission withheld for non-submission of DSC is forfeited.
 
The annual DSC can be submitted online on AMFI website at: https://www.amfiindia.com/distributor-corner/annual_selfcertification

Due Diligence of qualifying Mutual Funds Distributors

 
  1. What is Distributors’ Due Diligence?
    2. Due diligence, in the context of MFDs, refers to appraisal of various activities and processes undertaken by the MFDs while conducting the mutual fund distribution business and servicing their mutual fund clients, with a view to evaluate that the MFDs are exercising reasonable care and control that a prudent business set-up or person is normally expected to have in place, considering the fiduciary nature of mutual fund investments.
  2. SEBI Regulations w.r.t. Distributors’ Due Diligence
    3. As per extant SEBI Regulations, the AMCs are required to regulate their empanelled distributors by putting in place a due diligence process to satisfy the ‘fit and proper’ criteria that incorporate, inter-alia, the following factors:
    1. Business model, experience and proficiency in the business.
    2. Record of regulatory / statutory levies, fines and penalties, legal suits, customer compensations made; causes for these and resultant corrective actions taken.
    3. Review of associates and subsidiaries on above factors.
    4. Organizational controls to ensure that the following processes are delinked from sales and relationship management processes and personnel:
      1. Customer risk / investment objective evaluation.
      2. MF scheme evaluation and defining its suitability and appropriateness to various customer risk categories.
      Further, the AMCs are required to undertake the due diligence process of the MFDs satisfying one or more of the following four criteria at the time of their empanelment and during the review period:
      1. AUM raised over ₹ 100 Crore across industry in the non-institutional category but including high net worth individuals (HNIs)
      2. Commission received of over ₹1 Crore p.a. across industry
      3. Commission received of over ₹ Lakh from a single Mutual Fund
      4. Multiple point presence (more than 20 locations)
  3. Objective of the due diligence exercise
    4. The objective of the due diligence exercise is to review the efficacy and the effectiveness of the internal controls of the shortlisted distributors and their compliance with extant regulations and applicable AMFI guidelines, to enable the AMCs to satisfy themselves that the concerned distributors meet the ‘fit and proper’ criteria as required as per SEBI regulations.
  4. How is the Due Diligence process conducted?
    5. While the AMCs are required to undertake the due diligence process of their MFDs, for convenience and to avoid duplication, a common / unified due diligence of the qualifying MFDs is organised by AMFI on behalf of the participating AMCs utilising the services of qualifies audit firms. The due diligence reports submitted by the audit firms engaged for the purpose are shared with the respective AMCs for taking necessary action on the observations therein as deemed appropriate.

Commission Structure

 
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.
 
As per SEBI MF Regulations, 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.
 
In other words, incentives in any other form to the distributor which is not in the form of trail commission is not permitted as per above regulatory guideline. In short, MFDs are paid only trail commission and, such trail commission can be paid only in monetary terms.

Transfer of AUM from one MFD to another MFD

 
  1. Guidelines for transfer of AUM from ARN of one MFD to ARN of another MFD
    2. The detailed guidelines for transfer of AUM from ARN of one MFD to ARN of another MFD,
    please refer to AMFI circular dated 21-Mar-2023 available on AMFI website at –AMFIBestPracticesGuidelinesCircularNo.106_21.03.2023
  2. Procedure for transfer of AUM from ARN of one MFD to ARN of another MFD
    3. For the procedure for Transfer of AUM from ARN of one MFD to ARN of another MFD,
    please refer to AMFI circular dated March 28, 2024 available at –  ARNCircular25-CentralisedProcessforAUMTransfer

Nomination / Succession for Business Continuation:

 
Guidelines & procedure for transfer of AUM from ARN of a deceased MFD to the ARN of nominee/ legal heir
 
For detailed guidelines for transfer of AUM in respect of a deceased MF distributor to the ARN of the nominee/ legal heir of the deceased, please refer AMFI circular dated 28-Mar-2013 available at – CIRARN151213
 
For detailed the procedure in this regard, please refer AMFI circular dated 28-Mar-2024 at –AMFIBestPracticesGuidelinesCircularNo.106_21.03.2023
 

Regulations & Guidelines