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Mumbai: The Securities and Exchange Board of India (Sebi) is weighing whether individual mutual fund distributors (MFDs) should also be allowed to hold a registered investment advisor (RIA) licence, as it reviews the regulatory framework governing distribution and investment advice, according to two people familiar with the matter.
“The working group is discussing whether individual MFDs should also be allowed to hold an investment adviser (IA) licence," said one of the two people on condition of anonymity.
It is one of several issues considered by the working group set up by the capital markets regulator earlier this year to streamline norms governing MFDs and RIAs. The group's recommendation would allow individual MFDs to hold dual licences, similar to those held by institutions and other non-individual entities, the person added.
The group was first mentioned by Sebi chairman Tuhin Kanta Pandey in March.
The review comes against the backdrop of a longstanding overlap between mutual fund distribution and investment advice. MFDs, who sell mutual fund products to investors and earn commissions from fund houses, also provide incidental advice on other financial products. However, the scope of such advice has not been clearly defined.
An RIA, on the other hand, provides investment advice to clients for a fee and is permitted to advise on financial products beyond mutual funds.
The recommendation, if implemented, would more clearly codify the investment advice given by MFDs. The norms could also help individual MFDs expand their businesses into advisory services.
India has 1,048 RIAs and more than 100,000 MFDs.
Mint's queries emailed to Sebi remained unanswered.
Individual MFDs argue that selling mutual funds without giving an investor advice on their other portfolio is often not possible. The concern is particularly relevant when investors have multiple financial products.
An equity MFD may advise on equity products, while an insurance MFD may advise on insurance products; however, the investor may still have to deal with different intermediaries for different portfolio needs.
“If an equity MFD is only allowed to give advice on equity products, while an insurance MFD gives advice on insurance products. An investor needs one advisor or MFD who can recommend a product based on a thorough analysis of the portfolio, combined with advice on how to generate better overall returns," said the second of the two persons.
While allowing individual MFDs to become investment advisors could address the overlap, it would also create challenges, including potential conflicts of interest, dual compliance requirements and higher costs.
“An (R)IA and an MFD would effectively be wearing two different hats. As an (R)IA, they are expected to provide advice without a commission-driven incentive. As an MFD, for the advice they give, they earn commissions from the products they sell,” said a senior RIA on condition of anonymity.
“This could create an incentive to recommend a product that generates a higher commission, even when another product or a direct-plan alternative may be more appropriate for the client. Over time, an individual having both the licences could blur the distinction between fiduciary advice and commission-based distribution,” the person added.
Kartik Sankaran, an MFD with platform Happyness Factory, which manages assets worth more than ₹7,000 crore, said, “If an individual MFD has to gain an RIA licence to give a comprehensive financial plan, it would only increase their costs and compliance. Small MFDs would now need to have a compliance officer, additional documents and record-keeping, which will only add costs.”
To be sure, such compliance costs would only be levied on distributors that also choose to enter advisory.
Another RIA, also on condition of anonymity, said that having a dual licence doesn't solve the underlying problem. “An individual may struggle to manage two businesses, two sets of compliance requirements and two different incentives without mistakes or conflicts,” the RIA added.
Sebi executive director Manoj Kumar said the working group's recommendations have been submitted to Sebi, and final guidelines on the matter will be issued soon, Cafemutual reported on 4 October.
Srushti is a markets reporter at Mint. She writes on equity markets, and her areas of coverage range from brokers and exchanges to mutual funds and the fast-evolving alternatives space, including GIFT City, from the financial capital of India. She has an experience of over three years in journalism, and has previously worked at Moneycontrol. She has an undergraduate degree in mass communication and a postgraduate diploma in business and financial journalism from Asian College of Journalism, Chennai.<br><br>Srushti prefers meeting people from the industry over making calls. Her work aims to drive impact—her story on illegal gold imports, for instance, caught the government’s attention and contributed to a policy shift. She specialises in turning complex market data into clear, engaging stories so even her grandmother could understand futures and options.<br><br>Outside of the newsroom, she enjoys spending money on jewellery and watching thriller films—especially the kind that keep her awake at night. She spends 1.5 hours a day commuting in Mumbai locals, listening to horror podcasts on her way to work. She’s also very talkative—so reach out only if you have lots of time.
Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them. She holds a postgraduate diploma in business and financial journalism from the Asian College of Journalism, where she developed a strong foundation in markets, companies, and economic policy. She began her journalism journey with an internship at Bloomberg, where she worked across beats such as real estate, infrastructure, capital markets, and deals, which helped her understanding of business and finance.<br><br>She is guided by the belief that everything in this world can be explained in simple and fewer words, and that idea shapes how she approaches her writing. She aims to cut through complexity and present nuanced regulatory and financial developments in a way that is both accessible and meaningful to readers.<br><br>When she is not tracking market chatter, Apoorva can usually be found deep into a fiction novel or out on a long run. She is also a trained classical dancer in Bharatanatyam, Mohiniyattam, and Kathakali.
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