Fund Distribution

&
Sales Practices
 Investor Community

Institution Individual
al Investors
Investors

HNIs Retail
Who can invest in Mutual Funds in
India?
 Residents :

 Resident Individuals

 Indian Companies

 Indian Trusts/ Charitable Institutions

 Banks / NBFCs

 Insurance Companies

 Provident funds
Who can invest in Mutual Funds in
India?
 Non Residents :

 NRIs

 OCBs

 Foreign Entities:

 FIIs registered with SEBI

 Role of the Distribution
Channels
“MFs are primarily vehicles for large collective
investments , based on the principle of pooling
the funds from a large

number of investors”

Hence,

“Majority of schemes are targeted at the retail

level, from where a substantial portion of
investment takes place”

So,

“Distribution network becomes critical

Types of Distribution Channels:

1.Individual Agents
2. Distribution Companies
3. Banks / NBFCs
4. Direct Marketing ( By the Sales
Officers of AMCs)
5.Current Distribution patterns - Non
UTI funds rely on the 2&3 above.
Sales Practices in MF
Market
 Agents’
Commission
• Commission can be paid upfront or trail
commission.

• Market Practice: 1 - 1.5% (Equity funds)

0.6-0.8% (Debt Funds)

• Higher commission paid for Tax-benefit
schemes as there is a lock-in period.
 Agents’
Commission
•The initial issue expense cap of 6%
includes brokerage as well.
•All SEBI regulated open ended funds
are authorized to charge exit /entry
loads to cover the funds’ distribution
expenses.
• A no load fund includes these
expenses as a part of the regular
management & marketing expenses.

• SEBI prescribes a cap on all the total

 Effective Selling of MF
Schemes
• Know the important characteristics of the
scheme.

• Know your client profile (age, risk

tolerance,income levels)

• Understand clients’ needs (investment

objective, return expectation, cash flow
requirement)

• Assistance in making the right choice of

investment
SEBI's Advertising Code
• The code protects from misleading investors.
• Past performance is not a guarantee
• Dividends declared/paid shall be mentioned
in Rs.per unit
• Only compound and annualized yield can be
advertised for schemes for more than one
year.
• Annualised yield must be shown for at least
one, three fine and since launch.
• For less than one year performance may be
shown in terms of total returns should not
be annualized.
• Appropriate benchmark should be chosen.
And once chosen it should be consistent.
 Appointment of AGENTS
The key terms of agreement are as follows:
• The agent will provide a copy of the abridged OD to
the customer and will make available for inspection
a copy of the OD and sell at price currently in effect.
• The agent will execute all the transactions on
behalf of the customer who will not have any
recourse to the agent in case of an error(s) /
problems /quality of investment.
• The agent must make the customer know that the
funds’ units are not endorsed by him and do not
constitute his obligation.
•Agent responsible at his expense to ensure
compliance with applicable regulation in each
jurisdiction.
 Key terms of Agreement………….2

• The agent will offer/sell/purchase unit at the current

public offering price.

• All orders become effective only upon acceptance

and confirmation by the fund.

• The agent is responsible to ensure compliance with

the applicable regulations in each transaction he deals

in and the fund is not responsible for any breach by

agent in this regard.

 AMFI code of Ethics
AMFI has recommended a code of practices with
respect to overall fund operation including
distribution and selling.

1. Management of fund should be in the interest of

unit holders.

2. High standards of service are expected from funds

3. Adequate disclosure standards

4. Professional Selling practices.

5. Fund Management in accordance to stated

investment objective.
 Fund broking practices in US
• Cap on sales/distribution expenses.
• Broker is not allowed to describe a fund as no load fund
if it has front-end or default load.
• Broker prohibited from recommending that purchase of
units before ex-dividend may be advantageous.
• Prohibited from using commission as a basis for
recommending a fund.
• Preferred pricing to specific investors prohibited.