Mutual fund distributors, registered with the Association of Mutual Funds in India (Amfi), traditionally earned commissions through direct client interactions. However, influencers are now increasingly tapping into their extensive online followings to generate leads, merging finance with social media savvy. While some rely solely on mutual fund distribution, others diversify with paid partnerships and online courses.
Yet, this evolving landscape has caught the attention of the market regulator. Madhabi Puri Buch, chief of the Securities and Exchange Board of India (Sebi), signalled upcoming regulations to disentangle registered entities from unregistered influencers. At a recent board meeting, Buch emphasized that Sebi-registered entities must distance themselves from unregistered creators offering stock analysis or performance claims, with exceptions only for purely educational content.
Regulatory grey areas
Despite Buch’s directive, the treatment of Amfi-registered distributors remains ambiguous. Neither the consultation paper nor the Amfi code of conduct specifically addresses such influencers. This regulatory gap leaves room for potential missteps and confusion.
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“Currently, Amfi lacks specific guidelines for financial influencers (finfluencers) in mutual fund distribution and asset management, but Sebi discussions at recent board meetings hint at upcoming regulations,” said Sumit Agrawal, partner, Regstreet Law Advisors, and a former Sebi officer.
“Meanwhile, they should follow Amfi and Sebi rules, gain certifications, maintain transparency, disclose potential conflicts of interest, and adhere to advertising standards like ASCI’s. Staying informed and ethical is crucial to avoid Sebi notices and maintain investor trust, pending Sebi’s detailed guidelines for their role in mutual fund distribution,” Agrawal said.
Queries sent to Amfi remained unanswered till press time.
Impact on influencers
With new influencer regulations on the horizon, the revenue streams of finance content creators could face significant disruptions. Partnerships, affiliate links, and advertisements—all integral to influencers’ income—are under scrutiny. However, the exact impact on Amfi-registered MFDs, who operate under different guidelines, remains unclear.
Amfi’s role as the licensing body for mutual fund distributors, as stated on its website, complicates matters further.
The absence of detailed social media guidelines means influencers can continue sharing financial advice without immediate repercussions, as evidenced by a video from Himani Chaudhary, an Instagram influencer with 1 million followers on Instagram.
In the reel, which has garnered nearly half a million views, Chaudhary claimed that the Kotak Equities Opportunities Fund is a superior choice to the SBI Magnum Midcap Fund, citing better alpha, beta, and a lower expense ratio while offering similar returns. She used this analysis to illustrate how Bharatiya Janata Party politician Smriti Irani’s portfolio could have been improved.
It’s important to note that MFDs are permitted to provide advice incidental to sales but are restricted from offering comprehensive financial advice. The exact boundaries of what constitutes “incidental advice” is a grey area.
Chaudhary defended her content, saying, “Amfi guidelines allow me to talk about mutual funds on any platform online or offline. I can analyse and review the portfolio of any person.” This defence points to the broader issue of defining the boundaries of mutual fund distributors in social media contexts.
Amfi code of conduct and social media
The Amfi ‘code of conduct’ mandates that MFDs assess the suitability of mutual fund schemes for their clients, considering their financial status, investment experience, and objectives. However, since Chaudhary’s video did not directly market a specific scheme or involve one-on-one dealing with a client, it appears there is no violation of the Amfi’s code of conduct.
Emails sent to Amfi regarding this matter also remained unanswered.
Regarding social media usage, the ‘code of conduct’ simply states that MFDs must ensure their representatives are trained in proper conduct for sales, marketing, and distribution activities, emphasizing “responsible usage of social media platforms with respect to content standards, authenticity and approval for the information, frequency of usage and other ethical practices.”
Some influencer MFDs also create content about specific stocks.
For example, in a now-deleted video, Ladha, with 1 million followers on Instagram and 2.76 million on YouTube, explained why shares of Salasar Tech surged 20% in a single day. He cited a board meeting that decided the cut-off date for a 4:1 bonus issue and proposed the amalgamation of Hill View Infrabuild Ltd with Salasar. Additionally, he mentioned an upcoming proposal to raise funds and increase authorized share capital.
While this could be interpreted as financial advice or analysis by Sebi, requiring registration, Amfi currently lacks specific regulations on how to handle such cases.
Even after the implementation of Sebi guidelines for influencers, many revenue streams for these influencers may remain unaffected. They can continue earning through insurance companies, banks, or other unregulated products that fall outside Sebi’s jurisdiction. Additionally, they can still sell online or offline courses.
When asked by a Mint reporter if an influencer with a sub-broker license could continue earning commissions, Buch had reiterated that the regulation would apply to “all regulated entities and their agents.”
Therefore, Sebi needs to establish clear guidelines delineating the boundaries for Amfi-registered MFDs who also act as social media influencers. For now, regulatory arbitrage persists, and only time will reveal how and when this gap will be addressed.
*Ananth Ladha operates his mutual fund distribution business under his father’s name.