RBI permits NBFCs to sell mutual fund

MUMBAI: The Reserve Bank of India on Thursday lifted all restrictions on Non-Banking Finance Companies from selling mutual funds, throwing open the entire national market for the asset management companies. The central bank had earlier stipulated that only NBFCs with net owned funds of Rs. 100, crores and those with less than 3% net bad loans could alone sell mutual funds.

"The distribution of mutual fund products by the NBFCs is on 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 for NBFCs to distribute Mutual Fund products," said the RBI in a notification. "It has also been decided to dispense with the minimum eligibility criteria," it said.

NBFCs like SKS, Sriram Transport, Bajaj Finance and LIC Housing Finance would have to follow the Securities Exchange Board of India guidelinesfor sale of mutual fund products. NBFC would 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 / sale of MF units together with the payment instruments, to the Mutual Fund / the Registrars / the transfer agents," said the RBI. "The purchase of units should be at the customers' risk and without the NBFC guaranteeing any assured return," it said.

The NBFC would be restricted from acquiringunits of mutual funds from the secondary market for sale to its customers, nor should it buy back units of mutual funds from its customers.

The finance company would have to ensure that its own investments and the investments belonging to its customers are kept distinct from each other.