SEBI releases draft norms for mutual fund distributors, advisors

The Securities and Exchange Board of India (SEBI) has drafted a new set of rules and regulations for Banks, Non-Banking Financial Corporations (NBFCs) and other corporate bodies offering investment advice.

The proposed norms state that mutual fund distributors are explicitly not Allowed to give any investment advice whereas it is allowed to explain the material facts of the MF and the associated risk factors of the scheme. It is mentioned that the employees of registered investment advisors should be a graduate in any discipline. Previously, SEBI allowed only a post-graduate or a graduate with five years experience in the financial services industry which is  still applicable to an individual advisor.

The amended proposal also includes a segregation of advisory and product distribution businesses of Investment advisors. If implemented, companies providing investment advisory services will have to provide a separate subsidiary. At present, SEBI allows for these services to be provided through a separate division or department. A transition period of 6 months is allowed for existing entities. It was also mentioned that agencies providing a ranking of MF schemes need to be registered under research analyst norms.“Mutual fund distributors who want to get registered as investment advisors shall be allowed to receive trail commission for the products already distributed, subject to disclosure to the clients,” SEBI told.

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