Archive / Mutual Fund Distributors / Fund Distribution and Channel Management Practices

nism-series-va-nominee-commission-deceased-distributor[ MUTUAL FUND DISTRIBUTORS ]

What is the regulatory rule regarding the payment of trail commission to the nominee or legal heir of a deceased individual mutual fund distributor?

[ A ]All future trail commissions are immediately confiscated by AMFI and credited to the Central Government budget.

[ B ]The nominee must immediately pass the NISM exam within 24 hours of demise, or all client folios are deleted.

[ C ]The nominee can freely register new clients and launch new SIP mandates under the deceased distributor's ARN.

[ D ]The nominee (who need not hold an ARN) receives trail commission as trustee for legal heirs on assets mobilized prior to demise, until the AUM becomes nil or the investor changes the distributor code.[ CORRECT ]

Takeaway

Option D is correct: The nominee (who need not hold an ARN) receives trail commission as trustee for legal heirs on assets mobilized prior to demise, until the AUM becomes nil or the investor changes the distributor code.

Derivation

To protect distributor families, AMFI guidelines provide a nomination facility. Upon the demise of an MFD with a valid ARN, trail commission on assets mobilized prior to demise continues to be paid to the registered nominee/legal heir (who does not need to hold an ARN to receive payout) until the AUM becomes nil, provided the investor does not change the ARN. However, no new business or new SIP registrations are permitted under the deceased MFD's ARN. This tests distributor succession rules. A common misconception is believing nominees must hold an ARN simply to receive inheritance payouts.

Why the others fail

A — All future trail commissions are immediately confiscated by AMFI and credited to the Central Government budget.

Commissions belong to the estate of the deceased distributor and are never confiscated by AMFI or the government.

B — The nominee must immediately pass the NISM exam within 24 hours of demise, or all client folios are deleted.

Nominees do not need to hold an ARN or pass exams within 24 hours simply to receive trail payouts on pre-existing assets.

C — The nominee can freely register new clients and launch new SIP mandates under the deceased distributor's ARN.

New business, new systematic mandates, or client additions are strictly prohibited under the ARN code of a deceased distributor.