AMFI Best Practice Guidelines (BPG)

The AMFI Best Practice Guidelines (BPG) are a body of conduct, disclosure, and operational standards issued by the Association of Mutual Funds in India (AMFI) to govern the professional behaviour of asset management companies (AMCs) and their authorised distributors in the Indian mutual fund industry. The BPG are issued as numbered circulars by AMFI and carry quasi-regulatory force: while they do not have the status of statutory rules made under the SEBI Act, compliance with the BPG is a mandatory condition of AMFI membership for AMCs and of ARN registration for distributors.

The BPG address a wide range of topics including the prohibition of rebating and commission-sharing, suitability and know-your-customer obligations, standardised product disclosures, advertisement standards, grievance handling, commission disclosure, and technology norms. As the mutual fund industry has evolved, AMFI has issued successive BPG revisions and standalone circulars that update specific provisions without replacing the entire compilation. As of 2025, the BPG compilation runs to several hundred pages, covering both AMC-facing and distributor-facing provisions.

History and development

Origins

The first iteration of the AMFI Best Practice Guidelines was issued in 2000 as part of AMFI’s mandate, endorsed by SEBI, to professionalise the industry. At the time, the mutual fund distribution landscape was characterised by significant opacity: distributors received widely varying upfront commissions, there were no standard disclosure formats, and investor complaints were handled informally by individual AMCs.

The 2000 BPG addressed baseline conduct requirements, prohibiting practices such as promising guaranteed returns, misrepresenting past performance, and collecting application fees beyond what was permitted under scheme documents. These foundational provisions reflected AMFI’s early role as a standards-setter in the absence of granular SEBI regulation.

Progressive revision

Following SEBI’s initiative to strengthen investor protection in the 2010s, AMFI issued a revised and consolidated BPG in 2013-14. This revision significantly expanded the distributor-facing provisions, introduced explicit rules on churning (switching investors between schemes without adequate rationale), and required distributors to document their suitability assessments for each investor. The 2013-14 revision also incorporated SEBI’s direction on commission disclosure, requiring ARN holders to disclose the trail commission payable on each scheme sold.

Subsequent major revisions and standalone additions include:

• BPG circulars on EUIN (2013): requiring the recording of Employee Unique Identification Numbers on all transaction forms.
• BPG circulars on upfront commission prohibition (2018-19): following SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/137, AMFI updated the BPG to reflect the near-total prohibition on upfront commissions.
• BPG circulars on digital onboarding (2020-21): addressing the use of digital KYC processes, video-based customer identification, and online ARN renewal.
• BPG on scheme rationalisation disclosure (2018): guidance on communicating fund mergers and category changes to investors following SEBI’s 2017 scheme categorisation circular.

Key provisions

Anti-rebating and commission prohibition

The BPG contain an explicit prohibition on rebating: distributors may not share, rebate, or refund any portion of the commission or trail fee received from an AMC to the investor. This prohibition is fundamental to investor protection: rebating creates a race to the bottom in which distributors compete on commission-sharing rather than advice quality, and the practice also violates SEBI’s fair-practice code. Distributors found to be rebating face ARN suspension.

The prohibition extends to indirect forms of rebating, including gift-giving above a nominal threshold, payment of investor expenses, subsidising transaction costs, and any other benefit of economic value provided to investors that is funded from distributor commissions.

Suitability and know-your-customer

The BPG require ARN holders to conduct a suitability assessment before recommending any mutual fund scheme to an investor. The assessment must consider:

• the investor’s financial objectives and time horizon;
• the investor’s risk tolerance, which must be assessed through a standardised risk profiling questionnaire;
• the investor’s existing portfolio and diversification status;
• the investor’s liquidity needs; and
• the investor’s tax status and any tax-optimisation objectives.

Distributors must retain records of suitability assessments for a minimum of five years. Where a distributor recommends a scheme that appears inconsistent with the investor’s risk profile, they must document the reasons for the recommendation and obtain the investor’s written acknowledgement.

Anti-churning

The BPG define churning as the practice of recommending unnecessary scheme switches or redemptions primarily to generate commissions rather than to serve the investor’s interests. Churning is explicitly prohibited, and AMFI has directed AMCs to monitor switch patterns across distributor portfolios and escalate suspicious patterns to AMFI’s Distributor Affairs Committee.

Indicators of churning identified in the BPG include:

• high switch frequency relative to industry norms for an investor profile;
• systematic switching between direct-plan and regular-plan variants of the same scheme;
• recurring switches from equity to debt and back without apparent market rationale; and
• switches that trigger avoidable capital gains without corresponding investment benefit.

Commission disclosure

AMCs must disclose the commission payable to distributors on a scheme-by-scheme basis. This disclosure is available on the AMFI website and must also be provided to investors on request. Distributors must disclose the trail commission applicable to the specific scheme recommended at the time of transaction.

The BPG also require AMCs to include the Total Expense Ratio (TER) of each scheme prominently in all investor communications, and to explain the difference in TER between regular and direct plans, so that investors can make an informed choice between the two.

Grievance redressal

The BPG specify a minimum service standard for investor grievance redressal. AMCs must:

• acknowledge written complaints within 3 working days;
• resolve complaints within 30 calendar days from receipt;
• escalate unresolved complaints to the Compliance Officer;
• report grievance statistics to AMFI quarterly; and
• maintain a toll-free helpline.

Where a grievance remains unresolved after 30 days, the investor may escalate to SEBI’s SCORES platform, and the BPG explicitly require AMCs to communicate this escalation right to the investor at the 30-day mark. The complete AMFI investor grievance escalation matrix details the hierarchy from AMC-level resolution up through AMFI and SEBI.

Advertisement standards

The BPG incorporate the AMFI Advertisement Code by reference, requiring all AMC and distributor advertising to comply with the code’s provisions on accuracy, risk disclosure, performance presentation, and mandatory statutory warnings. The advertising standards align with SEBI’s own advertisement guidelines for mutual funds and require that all print and digital advertising carry the statement “Mutual Fund investments are subject to market risks; read all scheme-related documents carefully.”

Distributor-specific BPG provisions

A significant portion of the BPG is directed specifically at ARN holders:

Documentation obligations

Distributors must maintain client records including:

• account opening forms and KYC documents;
• risk profiling questionnaires and suitability assessments;
• signed/acknowledged transaction slips with EUIN recorded;
• commission disclosure acknowledgements; and
• complaint logs and resolution records.

Prohibited conduct

Beyond anti-rebating and churning, the BPG prohibit distributors from:

• misrepresenting past performance data, especially by presenting point-to-point returns over cherry-picked periods;
• comparing schemes of different categories on a single-parameter basis without disclosing category differences;
• using the word “guarantee” or equivalent in any context related to returns;
• making unapproved claims about rankings or awards; and
• operating without displaying the ARN number and its validity on marketing materials.

Onboarding standards

The BPG require distributors to educate first-time mutual fund investors on the basic principles of mutual fund investing, the risk-return tradeoff, the significance of the AMFI Risk-O-Meter, and the importance of reading scheme information documents before investing.

BPG enforcement mechanism

The BPG lack direct enforcement powers of the kind held by SEBI. AMFI’s enforcement mechanism works as follows:

1. Complaint receipt: AMFI receives investor complaints against distributors directly or through escalated cases from AMCs.
2. Enquiry: AMFI’s Distributor Affairs Committee reviews the complaint and calls for the distributor’s response.
3. Findings: Where a violation is found, AMFI may issue a warning, suspend the ARN for a defined period, or cancel the ARN permanently.
4. SEBI referral: In cases involving fraud, financial harm, or systemic misconduct, AMFI refers the matter to SEBI for regulatory action.

This enforcement architecture is weaker than direct statutory enforcement; some industry observers argue that because AMFI is funded by AMCs who have commercial relationships with large distributors, there is an inherent hesitancy to take aggressive enforcement action against high-volume ARN holders. SEBI has periodically intervened directly in distributor misconduct cases, particularly those involving large bank-linked distribution networks.

Relationship with the AMFI Code of Ethics

The AMFI Code of Ethics (ACE) operates as a companion document to the BPG. The ACE articulates principles-based ethical obligations, while the BPG translate those principles into specific operational rules and procedural requirements. Where the ACE says an AMC must act in the best interest of unit holders, the relevant BPG provisions specify how that obligation manifests in practice: required disclosures, prohibited practices, and documented procedures.

BPG provisions on technology and digital onboarding

The COVID-19 pandemic and the rapid growth of fintech-based mutual fund distribution platforms prompted AMFI to issue a series of BPG circulars specifically addressing digital onboarding, video KYC, and electronic transaction processing. Key provisions in the digital BPG stream include:

• Video-based KYC (V-KYC): AMCs and RTAs may onboard new investors using SEBI and RBI-permitted V-KYC processes, subject to specific identity verification protocols.
• OTP-based transaction authorisation: For digital platforms, OTP confirmation on registered mobile numbers may serve as authorisation for certain transaction types, subject to limits on transaction value and investor category.
• Electronic communication: Account statements, factsheets, and other investor communications may be delivered electronically (email or in-app) where the investor has provided and verified an email address. Physical despatch is required where an investor has not provided an electronic contact.
• Digital ARN renewal: Following AMFI Circular 27, ARN renewal through Aadhaar OTP is BPG-compliant, removing the earlier requirement for in-person biometric re-verification.

These digital provisions are periodically updated and represent one of the most actively evolving sections of the BPG compilation.

BPG on dividend and IDCW communication

Following SEBI’s direction in 2021 that the word “dividend” be replaced with “Income Distribution cum Capital Withdrawal (IDCW)” in all mutual fund communications, AMFI issued BPG provisions requiring:

• all factsheets, SIDs, and KIMs to use the IDCW terminology from the date of the circular;
• distributor marketing materials and verbal communications to investors to use the correct IDCW terminology;
• explanation of the nature of IDCW – that it is paid from the scheme’s distributable surplus including capital gains, and results in a reduction in NAV – to be provided to investors at the point of sale and in account statements.

The IDCG terminology change was specifically intended to address investor confusion: many retail investors mistakenly believed that mutual fund dividends were an income stream from invested capital (like bank fixed deposit interest) rather than a distribution that reduces NAV by an equivalent amount. The BPG provisions on IDCW communication reinforce the SEBI circular’s consumer protection objective.

BPG on scheme performance communication

The BPG contain detailed provisions on how AMCs and distributors may communicate scheme performance to investors:

• Benchmark comparison obligation: Any performance statistic communicated to investors must be accompanied by the corresponding benchmark return for the same period. Communicating absolute scheme performance without benchmark context is prohibited.
• Point-to-point period restrictions: Performance data for periods of less than one year must be presented as absolute return, not annualised. Annualising short-period returns (e.g., stating a 3-month return as an annual equivalent) is prohibited.
• Category-appropriate benchmarks: The benchmark used for comparison must be the scheme’s declared benchmark index, not a more favourable alternative.
• Inception date performance: Where a scheme has been managed by its current fund manager for less than the full period stated, the BPG require disclosure of the date from which the current manager has been in charge.

Access and updates

AMFI publishes all BPG circulars on its official website at amfiindia.com. The compilations are available as PDFs in the “Resources” section. Because the BPG are updated through stand-alone circulars rather than single periodic revisions, practitioners typically maintain the full set of circulars alongside the base compilation. AMFI issues periodic guidance notes to assist AMCs and distributors in interpreting specific provisions.

See also

• Association of Mutual Funds in India (AMFI)
• AMFI Code of Ethics
• AMFI Registration Number (ARN)
• Employee Unique Identification Number (EUIN)
• AMFI Advertisement Code
• AMFI Risk-O-Meter
• AMFI investor grievance escalation matrix
• Securities and Exchange Board of India (SEBI)

References

1. AMFI. “Best Practice Guidelines – Compilation.” amfiindia.com. Accessed 2026.
2. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137. September 2018. Commission structure for mutual fund distributors.
3. AMFI Circular dated 13 February 2013. EUIN BPG provisions.
4. AMFI Circular dated 23 October 2018. Updated anti-churning provisions.
5. SEBI. SEBI (Mutual Funds) Regulations, 1996. Regulation 53.
6. AMFI. “AMFI Code of Ethics and Best Practice Guidelines for AMCs.” 2013-14 edition.
7. Swarup, Monika, and Rajiv Kumar. “Self-regulatory bodies in Indian capital markets: AMFI and the BPG.” Journal of Emerging Market Finance (2020).