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Sebi brings new code
September, 24th 2009

The Securities and Exchange Board of India (Sebi) has issued a code of conduct for intermediaries, including disbributors, of mutual funds.

Asset management companies (AMCs) have been told not to deal with non-compliant intermediaries. They are to report such cases to the Association of Mutual Funds in India (Amfi) and Sebi.

The code of conduct is a sequel to the Sebi order in June this year empowering investors through transparency in payment of commission and the load structure and thereby mandating distributors to disclose all commissions.

In a 16-point code of conduct, the regulator has emphasised that clients interests are to be protected and that intermediaries should highlight the risk factors of each scheme and avoid misrepresentation and exaggeration. Industry sources said since the entry load ban on equity schemes came into effect from August 1, some malpractices were reported at several locations. The code of conduct has been brought to check such cases.

The code asks intermediaries to abstain from indicating or assuring returns to clients. The distributors are also to maintain necessary infrastructure to support the AMCs in maintaining the high service standards.

Coming down hard on commission-driven malpractices, the code asks intermediaries to avoid recommending inappropriate products solely because they get higher commissions from these. Distributors should also avoid over-transacting and churning of investments to earn higher commissions.

Intermediaries will not, according to the code, rebate a commission back to investors and will avoid attracting clients through such a temptation.

Intermediaries will not, according to the code, rebate a commission back to investors and will avoid attracting clients through such a temptation. At the same time, confidentiality of all investors deals and transactions should be maintained, said the statement.

All employees engaged in sales and marketing are advised to obtain Amfi certification

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