Distribution of Mutual Fund products by NBFCs: RBI

RBI/2014–15/578 DNBR. (PD).CC.No. 033/03.10.001/2014–15

April 30, 2015

Please refer to the Cir­cu­lar No. DNBS (PD) CC. No.84/03.10.27/2006–07 dat­ed Decem­ber 04, 2006 on the cap­tioned subject.

2. On a review, since the dis­tri­b­u­tion of Mutu­al Fund prod­ucts by the NBFCs is on non-risk shar­ing basis and pure­ly as a cus­tomer ser­vice, it has now been decid­ed to dis­pense with the require­ment of pri­or approval from the Reserve Bank for NBFCs to dis­trib­ute Mutu­al Fund prod­ucts. It has also been decid­ed to dis­pense with the min­i­mum eli­gi­bil­i­ty cri­te­ria. Accord­ing­ly, the guide­lines on dis­tri­b­u­tion of mutu­al fund prod­ucts by NBFCs have been suit­ably modified.

3. The revised guide­lines are enclosed in the Annex. These are in super­s­es­sion of the Cir­cu­lar No. DNBS (PD) CC. No.84/03.10.27/2006–07 dat­ed Decem­ber 04, 2006.

Yours faith­ful­ly,

(C. D. Srinivasan)
Chief Gen­er­al Manager

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Annex

Guide­lines on Dis­tri­b­u­tion of Mutu­al Fund Prod­ucts by NBFCs

1. NBFCs, which desire to dis­trib­ute mutu­al funds, would be required to adhere to the fol­low­ing stipulations:

(i) Oper­a­tional Aspects

(a) The NBFC should com­ply with the SEBI guide­lines / reg­u­la­tions, includ­ing its code of con­duct, for dis­tri­b­u­tion of mutu­al fund products;

(b) the NBFC should not adopt any restric­tive prac­tice of forc­ing its cus­tomers to go in for a par­tic­u­lar mutu­al fund prod­uct spon­sored by it. Its cus­tomers should be allowed to exer­cise their own choice;

© the par­tic­i­pa­tion by the NBFC’s cus­tomers in mutu­al fund prod­ucts is pure­ly on a vol­un­tary basis and this infor­ma­tion should be stat­ed in all pub­lic­i­ty mate­r­i­al dis­trib­uted by it in a promi­nent way. There should be no ‘link­age’ either direct or indi­rect between the pro­vi­sions of finan­cial ser­vices offered by the NBFC to its cus­tomers and dis­tri­b­u­tion of the mutu­al fund products;

(d) the NBFC should only act as an agent of its cus­tomers, for­ward­ing their appli­ca­tions for pur­chase / sale of MF units togeth­er with the pay­ment instru­ments, to the Mutu­al Fund / the Reg­is­trars / the trans­fer agents. The pur­chase of units should be at the cus­tomers’ risk and with­out the NBFC guar­an­tee­ing any assured return;

(e) the NBFC should nei­ther acquire units of mutu­al funds from the sec­ondary mar­ket for sale to its cus­tomers, nor should it buy back units of mutu­al funds from its customers;

(f) in case the NBFC is hold­ing cus­tody of MF units on behalf of its cus­tomers, it should ensure that its own invest­ments and the invest­ments belong­ing to its cus­tomers are kept dis­tinct from each other.

(ii) Oth­er Aspects

(a) The NBFC should have put in place a com­pre­hen­sive Board approved pol­i­cy regard­ing under­tak­ing mutu­al funds dis­tri­b­u­tion. The ser­vices relat­ing to the same should be offered to its cus­tomers in accor­dance with this pol­i­cy. The pol­i­cy will also encom­pass issues of cus­tomer appro­pri­ate­ness and suit­abil­i­ty as well as griev­ance redres­sal mech­a­nism. The code of con­duct pre­scribed by SEBI, as amend­ed from time to time and as applic­a­ble, should be com­plied with by NBFCs under­tak­ing these activities;

(b) the NBFC should be adher­ing to Know Your Cus­tomer (KYC) Guide­lines and pro­vi­sions of pre­ven­tion of Mon­ey Laun­der­ing Act.

2. NBFCs should com­ply with oth­er terms and con­di­tions as the Bank may spec­i­fy in this regard from time to time.