Ch.6 · Fund Distribution and Channel Management

ARN and EUIN Rules

50 practice questions on this topic

What is 'investor education' obligation of distributors under AMFI guidelines?

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EXPLANATION

AMFI guidelines require distributors to ensure that investors understand the nature of the scheme being recommended, the associated risks (as shown in the Riskometer), and how it fits their financial goals. Investors must give informed consent rather than investing without understanding what they are buying.

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How does the B-30 additional TER benefit distributors?

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EXPLANATION

The additional 0.30% TER allowed on B-30 AUM is passed on by AMCs to distributors as higher trail commission for B-30 inflows. This makes distributing mutual funds in smaller cities financially more attractive, incentivising distributors to expand their reach beyond metro cities.

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What is the 'empanelment' process that a distributor must complete with each AMC?

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EXPLANATION

Empanelment is the registration process with each individual AMC. A distributor with a valid ARN must submit their ARN certificate, KYC documents, bank account details, and sign the AMC's distributor agreement. Only after empanelment can the distributor sell that AMC's schemes and receive trail commissions.

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What is the role of the Principal Officer in a corporate mutual fund distributor?

A.The CEO of the distribution company

B.The NISM-certified individual who is responsible for ARN compliance and must be named in the ARN application for corporate distributors

C.The fund manager appointed by the AMC to oversee the distributor

D.The AMFI officer who approves ARN applications

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What is the Digital Transaction Platform (DTP) for mutual funds?

A.A platform for distributors to submit digital empanelment documents to AMCs

B.Online and mobile platforms provided by AMCs, RTAs, and third parties for digital mutual fund transactions

C.SEBI's digital platform for processing mutual fund scheme approvals

D.A platform for digital trading of close-ended mutual fund units

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What is an 'aggressive' risk profile in mutual fund investing?

A.An investor who makes quick trading decisions

B.An investor with high risk tolerance who can accept significant short-term losses in pursuit of higher long-term returns

C.An investor who redeems frequently when markets fall

D.An investor who only invests in NFOs

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What is the penetration level of mutual funds in India and why is it considered low?

A.Mutual fund AUM is 100% of GDP — very high penetration

B.Mutual fund AUM as a percentage of GDP is significantly lower than developed markets, indicating large untapped potential

C.Less than 1% of Indians have PAN cards, limiting mutual fund growth

D.Mutual funds only operate in 30 cities, limiting penetration

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What is trail commission in mutual fund distribution?

A.A one-time commission paid to the distributor at the time of investment

B.An ongoing commission paid monthly by the AMC to the distributor as a percentage of the investor's AUM

C.A commission paid by the investor directly to the distributor annually

D.A bonus paid to distributors who achieve AUM targets

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What is the AMFI Code of Conduct's requirement regarding investor complaints?

A.Distributors can ignore complaints that they consider frivolous

B.Distributors must acknowledge and help resolve investor complaints promptly and fairly

C.All complaints must be directly referred to SEBI

D.Complaints can only be handled by the AMC, not the distributor

Q10

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What is 'churning' from an AMFI Code of Conduct perspective?

A.A legitimate strategy to help investors book profits regularly

B.A prohibited practice of recommending frequent switches to earn commissions at the expense of investor returns

C.A technique of switching between growth and IDCW options

D.A practice of investing in multiple NFOs simultaneously

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