AMFI Code of Conduct for Intermediaries

The AMFI Code of Conduct applies to all registered mutual fund intermediaries, including distributors, advisors, brokers, and third‑party administrators. It is issued by the Association of Mutual Funds in India (AMFI) and is mandatory for members as per SEBI’s regulations.

Although the code is not a statute, non‑compliance is treated as a violation of SEBI (Mutual Funds) Regulations, 1996, and can attract penalties. Therefore, every distributor must treat the code as a de‑facto legal requirement.

For the NISM exam, questions often test whether a candidate knows which entities are covered, the relationship between the code and SEBI regulations, and the consequences of breaching the code.

The code rests on four overarching principles: Integrity, Fairness, Transparency and Professionalism. Each principle translates into concrete actions that an intermediary must follow while dealing with investors.

Integrity demands that intermediaries act honestly, avoid conflicts of interest and disclose any material relationship that could influence advice. Fairness requires treating all investors equally, irrespective of their size or sophistication.

Transparency focuses on clear communication of product features, fees, risks and performance. Professionalism mandates that intermediaries possess adequate knowledge, maintain proper records and continually upgrade their skills. Exam questions frequently ask you to match a principle with its practical implication.

Distributors must obtain a signed KYC form from every investor and keep it updated. They also need to provide a pre‑sale brochure that contains the fund’s investment objective, risk factors, expense ratio and past performance (with a disclaimer that past performance is not indicative of future returns).

Before recommending a scheme, a distributor must assess the client’s risk‑capacity using a standard questionnaire and ensure the recommendation aligns with the client’s financial goals. This is the practical application of the “suitability” requirement under the code.

For the exam, you may be presented with a scenario where a distributor recommends a high‑risk equity fund to a retiree. The correct answer will highlight the breach of the suitability and fairness principles.

Advisors and brokers share many duties with distributors but have additional responsibilities such as maintaining a conflict‑of‑interest register and providing a written advisory agreement that outlines fee structures and services.

They must also ensure that any research reports or market commentary are not misleading and are based on verifiable data. Mis‑representation can attract severe penalties under SEBI’s anti‑misleading advertisements provisions.

Exam items often ask which party is responsible for a particular disclosure – knowing the distinction between distributor and advisor obligations is key.

Every intermediary must establish an internal compliance framework, appoint a compliance officer and conduct periodic self‑audits. The compliance officer is responsible for reviewing client files, verifying that disclosures are complete and that the risk‑profiling questionnaire is correctly filled.

AMFI conducts annual compliance checks and may request random samples of transaction records. Failure to cooperate can lead to suspension of membership.

In the exam, a question may describe a compliance audit scenario; the correct answer will point to the role of the compliance officer and the need for documented evidence.

Intermediaries must disclose all fees (entry, exit, transaction and advisory fees) in a clear, itemised manner. The expense ratio of the fund must also be disclosed, as it directly impacts investor returns.

Additionally, any material change in the fund’s investment strategy, risk profile or management must be communicated to existing investors within a stipulated time frame (usually 15 days). This aligns with the transparency principle.

Exam questions may ask you to identify which fee component is not required to be disclosed in the pre‑sale brochure – knowing the full list helps you avoid the trap.

SEBI may impose monetary penalties, suspend or cancel the intermediary’s registration, and direct disgorgement of ill‑earned commissions. The severity depends on the nature of the breach – intentional mis‑selling attracts higher penalties than a procedural lapse.

Repeated violations can lead to blacklisting by AMFI, which effectively bars the intermediary from participating in the mutual fund ecosystem.

In the exam, a question may present a list of possible sanctions; you must select the one that matches the seriousness of the described violation.

Remember the acronym IFTP – Integrity, Fairness, Transparency, Professionalism – to quickly recall the four pillars of the code.

Use the mnemonic K‑F‑D‑R for mandatory disclosures: KYC, Fees, Disclosure of risk, and Return (past performance disclaimer). This helps you answer multiple‑choice questions on required documents.

When faced with a scenario‑based question, ask yourself: (1) Has the intermediary obtained KYC? (2) Was a risk‑profile completed? (3) Were all fees disclosed? (4) Is there any conflict of interest? If any answer is ‘No’, the code has been breached.