Norms for distribution of MF products by NBFCs eased

The Reserve Bank of India (RBI) on Thursday eased the norms for distribution of mutual fund products by non-banking financial companies (NBFCs) by doing away with the requirement of prior approval from the central bank.

“On a review, since the distribution of mutual fund products by NBFCs is on a 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,” RBI said.

It also did away with the minimum eligibility criteria.

The regulator, however, said NBFCs should comply with the Securities and Exchange Board of India guidelines and regulations, including its code of conduct for distribution of mutual fund products. NBFCs, it said, shouldn’t force customers to choose a particular mutual fund product sponsored by it.

NBFCs are allowed to act as agents of its customers, forwarding their applications for purchase and sale of mutual fund units and the payment instruments to a mutual fund. The purchase of units should be at a customer’s risk, without the NBFC guaranteeing assured returns, RBI said.

It added NBFCs should neither acquire units of mutual funds from the secondary market for sale to customers nor buy back units of mutual funds from them. It said in case an NBFC was holding custody of mutual fund units on behalf of its customers, it should ensure its own investments were kept distinct from those of its customers.