The Securities and Exchange Board of India (Sebi) is evaluating whether individual mutual fund distributors (MFDs) should be permitted to hold registered investment advisor (RIA) licences, as reported by Mint. According to two people familiar with the matter, the working group is discussing whether individual MFDs should also be allowed to hold an investment adviser (IA) licence. The group was first mentioned by Sebi chairman Tuhin Kanta Pandey in March and was established to streamline norms governing MFDs and RIAs.
The review addresses a longstanding overlap between mutual fund distribution and investment advice, as reported by Mint. MFDs currently sell mutual fund products to investors and earn commissions from fund houses while also providing incidental advice on other financial products. However, the scope of such advice has not been clearly defined. An RIA provides investment advice to clients for a fee and is permitted to advise on financial products beyond mutual funds, creating potential confusion in the regulatory framework.
If implemented, the recommendation would allow individual MFDs to hold dual licences, similar to those held by institutions and other non-individual entities, according to Mint. The norms could help individual MFDs expand their businesses into advisory services and more clearly codify the investment advice given by MFDs. India currently has 1,048 RIAs and more than 100,000 MFDs in the market.
Individual MFDs argue that selling mutual funds without giving investor advice on their other portfolio is often not possible, particularly when investors have multiple financial products, as reported by Mint. A senior RIA noted that an RIA and MFD would effectively be wearing two different hats, creating potential conflicts of interest. Kartik Sankaran, an MFD with platform Happyness Factory managing assets worth more than ₹7,000 crore, stated that gaining an RIA licence would increase costs and compliance requirements for small MFDs.
Sebi executive director Manoj Kumar confirmed that the working group's recommendations have been submitted to Sebi, with final guidelines on the matter expected to be issued soon, according to Cafemutual. The regulatory framework review aims to address the complex relationship between distribution and investment advice in India's financial services sector.
