Distribution and ethics

ARN is the distributor's licence. Code of Conduct binds them to act in client interest, disclose conflicts, and avoid mis-selling. Common mis-selling examples: recommending high-risk equity to senior citizens, churning funds for commission, misrepresenting past returns as guaranteed. Grievances go through the AMC first, then SEBI SCORES, then ombudsman or court.

AMFI tracks distributor performance via complaint indices and audit results. A pattern of complaints can lead to ARN suspension. Mis-selling is hard to prove individually but easy to detect at scale via behavioural patterns (high churn, concentrated commission income from one fund category). SEBI SCORES processes complaints with regulator follow-up. Distributors must maintain records of all client interactions and product recommendations for 5+ years; SEBI can request these in disputes.

A real-world nuance: the "principal-agent problem". The AMC pays the distributor; the client pays neither directly. Aligning the distributor's incentives with the client's long-term interest is structurally hard. The 2013 Direct Plans introduction was SEBI's response. The next likely step (debated industry-wide) is a complete fee-only model where distributors charge clients directly. Until then, the Code of Conduct is the only enforceable protection.