5.5 AMFI Code of Conduct for Intermediaries

Status of the Code

The AMFI Code of Conduct for Intermediaries of Mutual Funds binds every ARN holder. It is an AMFI instrument, appended to the NISM curriculum, and it is enforced through the ARN: AMFI can suspend or cancel registration for breach. A separate AMFI Code of Ethics (ACE) applies to AMCs and trustees; do not confuse the two.

Suitability and the Investor's Interest

The foundational obligation is that recommendations serve the investor.

• Recommend on the basis of need, risk profile and horizon, not on the commission a scheme pays.
• Understand the product before recommending it — a distributor who cannot explain what a scheme invests in should not be selling it.
• Do not churn. Switching an investor between schemes to generate fresh commission, without a genuine change in circumstances or scheme merit, is an express breach.
• Take into account the investor's existing portfolio rather than treating every recommendation in isolation.

Disclosure of Commission

The Code requires full disclosure of all commissions, in whatever form, received from any AMC in respect of schemes being recommended. The obligation has a specific and often-missed dimension:

When a distributor recommends a scheme from among competing schemes, the commission receivable from each of those competing schemes must be disclosed, so the investor can see whether the recommendation aligns with the distributor's remuneration.

Disclosure covers both regular and direct plans, so that the investor knows a lower-cost route exists. Failing to mention that a direct plan is available is a disclosure failure even when everything said about the scheme is accurate.

The Prohibition on Rebating

The Code prohibits rebating — passing back any part of the commission to the investor, in cash or in kind, as an inducement to invest, and equally prohibits offering gifts or other inducements.

The rule looks paternalistic until its logic is seen: rebating turns distribution into a price competition on commission share rather than competition on advice quality. The distributor prepared to rebate most wins the business, the distributor who advises best does not, and investors are then steered into whatever product carries the largest commission to rebate from. Prohibiting it is what makes advice, rather than kickback, the basis of competition.

Honest Representation

• No misleading or exaggerated claims about performance, safety or returns.
• No guarantees of return, capital protection or assured income unless the scheme genuinely carries such a feature and it is disclosed in the scheme documents.
• Past performance must be presented in the prescribed manner, with the standard caution that it may or may not be sustained.
• Do not disparage other distributors, AMCs or schemes; compete on merit.
• Do not use unauthorised material. Communications about a scheme must be consistent with the scheme documents and the advertising code.

Process and Documentation Obligations

• Complete KYC and other documentation correctly, and never submit forms signed in blank.
• Deposit collected instruments promptly; a distributor must not delay, and must never accept cash beyond what is permitted.
• Do not accept a power of attorney to transact on behalf of an investor in a way that removes the investor's decision.
• Maintain confidentiality of investor information; it may not be used for any purpose other than servicing the investor.
• Provide the EUIN of the individual giving the advice, so that advice is traceable to a person.
• Assist in grievance redress rather than obstructing it.

Practices Expressly Prohibited

Consequences of Breach

AMFI administers the Code through the ARN and may suspend or cancel it. Beyond that, an AMC conducting due diligence may restrict or terminate empanelment, and conduct amounting to fraud or market misconduct remains within SEBI's reach under general securities law.

The practical defence against a conduct allegation is not a persuasive account given years later. It is contemporaneous records: a dated risk profile, a written recommendation basis, retained communications, and a commission disclosure the investor acknowledged. A distributor who keeps those has evidence; a distributor who does not has only a recollection.