SEBI directs AMFI to address issue of mis-selling by Mutual Fund Distributors

SEBI directed AMFI to deal effectively with instances of mis-selling reported by AMCs involving their distributors. 

In a letter sent to AMFI in January 2025, SEBI asked the trade body to review and address evolving issues related to mis-selling by MFDs reported by AMCs. In fact, the market regulator instructed AMFI to issue best practice guidelines for handling mis-selling cases reported by AMCs.

In the past, SEBI had found instances of mis-selling by MFDs. It discovered that some distributors sold small-cap funds to senior citizens as well as retirement funds to minors.

SEBI recommended AMFI to consider implementing the following measures to reduce instances of mis-selling:

·         Direct RTAs to send a communication to investors informing them about the risks associated with the invested schemes along with their account statements

·         Introduce a practice of obtaining written approval from investors, confirming that they understand the risks related to the scheme

·         Establish a reporting mechanism detailing mis-selling incidents identified by AMCs and the actions taken against the erring MFDs

Furthermore, SEBI directed AMCs to implement systems and checks to prevent mis-selling.