Which of the following is a function of AMFI?

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Extended Explanation

AMFI is an industry self-regulatory organization that administers distributor registration and maintains professional standards, making option C correct. The ARN (AMFI Registration Number) is mandatory for all mutual fund distributors and is issued only after passing the NISM Series V-A exam and completing AMFI registration. Option A is incorrect because scheme approval is exclusively SEBI's statutory function under the SEBI (Mutual Funds) Regulations, 1996. Option B misunderstands NAV mechanics; SEBI governs valuation norms, but NAV is calculated by custodians based on the fund's daily asset values, not set by any regulatory body. Option D is also SEBI's domain; SEBI imposes penalties on AMCs for regulatory violations, while AMFI enforces its Code of Conduct through disciplinary action against distributors, not AMCs.

Concept Deep-Dive

AMFI's regulatory role differs fundamentally from SEBI's statutory authority. SEBI regulates mutual funds themselves, AMCs, and the broader securities market under law. AMFI, formed in 1995, operates as a self-regulatory body specifically governing the distributor segment. When a candidate passes NISM Series V-A, they must then register with AMFI (via CAMS) to obtain an ARN, which identifies them as an authorized distributor. AMFI's Code of Conduct mandates complete disclosure, prohibits rebating (passing commission back to investors), prevents mis-selling, requires KYC verification, and demands commission transparency if asked. Breaches trigger AMFI disciplinary action, not SEBI penalties. For example, if a distributor tells an investor the expense ratio will be waived, that violates the rebating prohibition and subjects the distributor to AMFI sanctions.

Exam Relevance

Candidates frequently confuse AMFI's role with SEBI's, especially regarding scheme approval and penalty authority. The exam tests whether you know AMFI issues ARNs and enforces the Code of Conduct, while SEBI approves schemes and penalizes AMCs. A common trap is option D, which sounds plausible because both bodies regulate the industry, but only SEBI has statutory power to penalize AMCs. Know that rebating and mis-selling are the two most tested Code of Conduct violations; these appear frequently in distributor-specific questions.

Real-World Application

An MFD receives a client interested in equity funds. Before discussing any scheme, the MFD must obtain KYC information (AMFI requirement). When explaining the fund, the MFD must disclose the expense ratio accurately and cannot offer to reduce it or rebate any portion of commission. If the client later asks how much the MFD earns, the MFD must disclose the commission structure honestly. If the MFD breaches these standards, AMFI can suspend or cancel the ARN, effectively ending the distributor's ability to operate. This illustrates how AMFI's Code of Conduct directly governs daily distributor conduct and consequences.

Cross-Chapter Connection

AMFI's distributor registration and Code of Conduct function directly supports Chapter 6: Fund Distribution and Channel Management, which covers distributor roles, ARN requirements, and ethical obligations in the distribution channel. This connects to Chapter 4: Legal and Regulatory Framework, since SEBI establishes the regulatory mandate that requires AMFI to administer distributor compliance and maintain standards of practice.

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