Reserve Bank of India removes curbs on NBFCs for sale of mutual funds

The Reserve Bank of India on Thursday lifted all restrictions on non-bank finance companies to sell mutual funds. The central bank had earlier stipulated conditions such as net-owned funds of at least Rs 100 crore and net bad loans of less than 3% for NBFCs to sell mutual funds. “The distribution of mutual fund products by the NBFCs is on a non-risk-sharing basis, and purely as a customer service. It has now been decided to dispense with the requirement of prior approval from the Reserve Bank or NBFCs to distribute mutual fund products,“ an RBI notification said.

It has also been decided to dispense with the minimum eligibility criteria, RBI said, while adding that the guidelines on distribution of mutual fund products by NBFCs have been suitably modified accordingly.

RBI had allowed NBFCs to distribute products n 2006 with restrictions. As per the norms, the NBFC should comply with the Sebi guidelines or regulations, including its code of conduct, or distribution of mutual fund products.

NBFCs such as SKS Microfinance, Shriram Transport, Bajaj Finance and LIC Housing Finance will still have to follow Securities Exchange Board of India guidelines for selling mutual fund products. NBFCs will not be permitted to force a customer to buy a particular mutual fund.

“The NBFC should only act as an agent of its customers, forwarding their applications for purchase or sale of MF units together with the payment instruments to the mutual fund, the registrars or the transfer agents,“ the RBI said. “The purchase of units should be at the customers' risk and without the NBFC guaranteeing any assured return,“ it added.

NBFCs can't acquire units of mutual funds from the secondary market for sale to their customers or buy back from their customers.They have to ensure that their own investments, and investments belonging to customers are kept distinct from each other.

The NBFC should not adopt any restrictive practice of forcing its customers to go in for a particular mutual fund product sponsored by it.Its customers should be allowed to exercise their own choice, RBI said.