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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Fund Distribution and Channel Management Practices

Which of the following is an example of a mis-selling practice by a mutual fund distributor?

Switching a client from one scheme to another only to earn higher commission is mis-selling, because it puts the distributor's interest ahead of the investor's. Assessing risk profile, disclosing commission and explaining exit load are all proper conduct under the AMFI code.

  1. ARecommending a scheme after assessing the investor's risk profile
  2. BDisclosing the commission earned when asked
  3. CSwitching a client from one scheme to another solely to earn higher commissionCorrect
  4. DExplaining the exit load applicable to a scheme

Explanation

Churning or switching clients between schemes mainly to earn higher commission, without benefit to the investor, is mis-selling. The other actions are good practice consistent with suitability and transparency.

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