Hi @nithin sir. How are Zerodha or even other discount brokers selling direct MF plans when a SEBI letter says MFD cannot deal in direct plans at all. Is there something which MFDs dont know ? Can you please explain ?
I have attached a ss from AMFI’s code of conduct.
We are not an MFD.
Adding to what @Bhuvan mentioned, let me explain this bit in detail. Zerodha operates under a stock broker license (INZ code), not as a Mutual Fund Distributor (MFD with ARN code). This is a completely different regulatory pathway with different rules.
India has several distinct frameworks for offering mutual funds:
1. Stock Brokers (INZ Code)
- Registered with SEBI with INZ code
- Can facilitate mutual fund transactions through exchange platforms (BSE StAR MF/NSE Invest)
- Permitted to offer direct plans through these exchange platforms
- Purely execution-based without investment advice
- SEBI Circular SEBI/IMD/CIR No. 11/183204/2009 and exchange regulations
2. Mutual Fund Distributors (MFDs)
- Registered with AMFI with ARN code
- Can only sell regular plans with embedded commissions
- Cannot deal in direct plans per AMFI’s code of conduct
- Typically offer some level of service/guidance to investors
3. Registered Investment Advisors (RIAs)
- Registered under SEBI (Investment Advisers) Regulations, 2013
- Can recommend direct plans and charge advisory fees
- Cannot receive commissions from AMCs
- Fiduciary responsibility to clients
4. Execution Only Platforms (EOPs)
- Created by SEBI in 2016 (SEBI/HO/IMD/DF2/CIR/P/2016/111)
- Category I: Entities with existing SEBI registrations
- Category II: Entities without SEBI registrations
- Can facilitate transactions in direct plans
- Must not provide investment advice
- Pure execution model
5. Banks
- Can distribute mutual funds through corporate agency arrangements
- Usually operate with ARN codes under MFD regulations
- Some banks operate through their broking subsidiaries (INZ route)
6. Online Investment Aggregators/Marketplaces
- May operate through RIA, broker, or EOP frameworks
- Must have appropriate registrations based on their services
7. Fintech Companies with AMFI Registration
- Often operate with ARN codes (regular plans)
- Some obtain additional registrations (RIA/Broker) to offer direct plans
8. Asset Management Companies (AMCs) Direct
- Investors can approach AMCs directly (websites/branches)
- No intermediary involved
How Zerodha Operates
Zerodha operates through its stock broker license (INZ), using the exchange infrastructure:
- We use BSE’s StAR MF and NSE’s MFSS platforms to process mutual fund transactions.
- We provide a pure execution-only service.
The AMFI code of conduct restriction you mentioned applies specifically to MFDs with ARN codes. Since Zerodha operates under a completely different regulatory framework (as a broker with INZ code), these restrictions don’t apply to our business model.
SEBI has specifically enabled this pathway through:
- SEBI Circular SEBI/IMD/CIR No. 11/183204/2009 (allowing exchanges to distribute mutual funds)
- Various exchange regulations for mutual fund transactions
This is an intentional, separate pathway created by SEBI to provide investors with greater access to direct plans through digital platforms.
MFDs (with ARN) cannot deal in direct plans, but stock brokers (with INZ) can facilitate direct plan transactions through exchange platforms. These are two separate regulatory categories with different rules and permissions.
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Thank you for such an elaborate explanation. Makes things clear. Appreciated sir 
I am developing my own mutual fund distribution site. I needed help with something. If I wish to sell any MF scheme of any AMC after empanelment but without any intermediary like BSE StAR platform how can I do it ?
How can I connect my website to each AMC’s portal where a user doesnt have to be redirected anywhere and can buy it from my website directly ?
I am an MFD looking to sell regular plans but want my website to be as good and seamless as all the big brokers where users dont get redirected anywhere.
If any tech guy could help me please.
they can help you better!Thank you👍🏻