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45. How do AMC encourages distributors to do unethical practices?
The industry faces the challenges to control certain undesirable practices .AMCs are wooing the distributors by offering more commission to push their products . In the hope of getting more incentives, distributors may opt for unfair practices like false projection to sell unsuitable products, motivate the investors to shift from one Fund to another , namely high net worth investors and persuade them to over invest . However , the client's concern and his needs should be of prime importance while selling . To curb such unethical practices , the Association of Mutual Funds in India (AMFI) regulates the distributors . It has prescribed that the agents/ distributors must have AMFI certification .And to control the huge marketing expenses , the SEBI has prescribed certain regulations on the expenses charges by a Mutual Fund . For example , the commission rates should not be more than the Mutual Fund's expense limit of 2.5% for equity and 2.25% for debt Such regulations are required to be more effective to stop such unethical practices.
Ans: AMCs are wooing distributors offering them more commission so as to push their products . In the hope of getting more incentives , distributors may opt for unfair practices like false projection to sell unsuitable products , motivate the investors to shift from one Fund to another , namely high net worth investors , and persuade them to over invest.