NISM_VA_Ch_06_Fund Distribution _ Channel Management Practices

NISM VA Chapter 06 – Fund Distribution And Channel Management Practices July 13, 2022

Learning Objectives Learn About: • Role and importance of mutual fund distributors • Different kinds of mutual fund distributors • Modes of distribution • Pre-requisites to become a mutual fund distributor • Revenue of a mutual fund distributor • Commission disclosure mandated by SEBI • Due Diligence Process by AMCs for Distributors of Mutual Funds • Nomination facilities for mutual fund distributors • Change of distributors

Role & Importance Of Mutual Fund Investors Investor 01 Portfolio 04 02 Mutual Fund Distributor 03 Fund Manager 3

Mutual Fund Distributors Individual Non-Individual Player Entities Banks NBFCs & Stock Brokers National / Regional Distributors E-Commerce Platforms 4

Modes Of Distribution Stock Exchange Platforms 01 Online Channel Partners 02 Computer / Mobile Apps Mutual Fund Utilities offered by distributors 03 04 Electronic platforms New age investment created by the AMCs platforms 05 06 5

Pre-requisite To Become A Mutual Fund Investor NISM Know Your Obtaining ARN Empanelment Certification Distributor Registration Process With Number from (KYD) AMFI Each AMC separately • Pass the certification • Document Verification • Bio-metric Process examination conducted by NISM OR • In special cases qualify for Continuing Professional Examination (CPE) 6

Empanelment Procedure Personal Information of Applicant Business Details Nominee Names of key personnels handling sales & operations Bank details Sign a declaration – keep transactions confidential, no rebate, abide by instructions & law, all employees to have ARN 7

Revenue For A Mutual Fund Investor Transaction charges only for GST On Commission fresh inflows Annual turnover > Rs. 20 Lakhs For transaction > rs.10,000, charges of Rs.150 (first time investor) & Rs.100 Additional commission for (other than first time investor). Deducted promoting mutual funds in small in 4 EMIs in case of SIP. towns Can opt-out at distributorlevel. Fund mobilisation from B-30 (beyond Trail Commission Top30) locations earn higher commission Calculated daily and paid monthly or quarterly. Up fronting allowed in certain cases 8

Commission Disclosure Mandated By SEBI SEBI has mandated MFs / AMCs to disclose on their websites the total commission and expenses paid to distributors who satisfy one or more of following condition: Multiple Point of AUM raised over Rs.100 crore Presence across industry in the non- • More than 20 locations 01 institutional category but 02 including high net worth individuals (HNIs) Commission received of Commission received of over Rs.50 lakhs from a single over Rs.1 crore p.a. across mutual fund / AMC for an 04 excessive turnover ratio industry 03 9

Due Diligence For Distributors Factors to satisfy ‘fit & proper’ Organisational controls to ensure that the following processes are delinked criteria from sales & relationship management: Business model, experience and • Customer risk / investment objective evaluation proficiency in the • Mutual Funds scheme evaluation & defining its appropriateness to business various customer risk categories Record of regulatory / statutory levies, fines & Customer relationship Customer on-boarding & penalties, legal suits, categorized as relationship management customer compensations Advisory or Execution process, service standards, made; causes for these & only grievance handling resultant corrective actions taken Review of transactions, Internal / external audit exceptions identification, process Review of associates and resolution process by subsidiaries on above internal audit factors Recruitment, training, certification and review of all Findings of ongoing personnels engaged in review from sample survey business of investors 10

Nomination Facilities Nominee Of A Deceased Mutual Fund Distributor 01 Commissions are paid to nominees or legal heirs of the deceased Nominee need not be an ARN holder 02 03 Commissions can be paid only for assets procured during ARN validity Transfer of AUM to nominee can 04 happen if the nominee has a valid arn & kyd compliant 11

Change Of Distributor No commission to Investors can change be paid to any their distributors or do MFD in case of change of directly distributor code in a folio NOC from existing distributors not required 12

Summary: • Experts involved in building a mutual fund portfolio are investors, mutual fund distributors & fund managers. • There are two types of mutual fund distributors, viz, individual players and non-individual entities. • Different modes of online distributors are online channel & stock exchange platforms, mutual fund utilities, applications offered by distributors & electronic platforms created by AMCs.

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