A few distribution platforms are allowing unqualified sub-brokers to sell specialized investment funds (SIFs) — plans that require a minimum investment of ₹10 lakh and yield healthy commissions — in violation of norms as the segment faces a shortage of approved sellers, according to three people aware of the development.
SIFs are more flexible than mutual funds when it comes to strategies such as long-short equity, derivatives and active asset allocation helping in delivering superior returns attracting investors. But, given their relatively higher risk, Securities and Exchange Board of India (Sebi) rules mandate distributors clear an exam conducted by National Institute of Securities Markets (NISM). Barely half the number of people taking the exam pass it.
The emerging practice of platforms permitting sub-brokers who have not passed the NISM exam yet engage in SIF sales will raise concern of the markets regulator that may then hold asset management companies working with errant distributors responsible for skirting norms, according to two former Sebi board members.
It will be viewed seriously by Sebi, a former board member at the regulator said. “It would be a cause for concern for the regulator. If this is happening to circumvent the need for training, Sebi would look at it seriously," said the first former Sebi board member, asking not to be identified.
But, the tricky part is that MF distributors do not directly come under the regulatory purview of Sebi. "The regulator can either ask the industry body to intervene or hold the AMC accountable for the distributor,” this person said.
Mint reached out to Sebi for comment but did not receive a response.
At the core of the transgression is a Sebi regulation of 27 February that only sub-brokers who have cleared the NISM XIII (derivatives) exam can sell SIFs.
“If the platform has a licence [to sell SIFs], then they allow their sub-brokers to sell SIFs without the certificate as it becomes difficult for the platform to entertain clients who want SIF without the required number of distributors,” said a senior AMC executive who has recently launched an SIF product and did not want to be named.
The number of SIF distributors in India, even though growing, is low at 6,200 as of March end, as per data from Computer Age Management Services Ltd, a MF transfer agency. This compares to about 200,000 distributors for MFs.
How it works
Sub-brokers operate under a particular distributor, where the main distributor provides a platform and a certain scale to smaller sub-brokers. The sub-brokers then source clients and execute transactions using the platform’s infrastructure and compliance framework. Commissions are shared with the sub-brokers and the main distributor.
In practice, uncertified sub-brokers do not receive commissions immediately, as formal payouts would leave a trail. These are typically individuals preparing for the NISM XIII (derivatives) exam and awaiting certification. “These platforms carve out commissions and the moment you pass the exam, you will get the commission,” the AMC executive said.
“We have observed practices where commissions are given without being SIF certified,” said Prudent Corporate Advisory, one of India's biggest mutual fund distributors in an emailed response to Mint, stressing that only certified sub-brokers sell on its platform.
Other routes have also emerged to make this workaround function. “Commissions are always routed through the parent broker, even in a sub-broker model. In this case, the commissions would likely be passed through informal routes, not formal channels,” said a second person.
The economics of distribution make for a strong incentive. Distributors earn commissions of 1% to 1.4% on SIFs, higher than many traditional MF offerings.
Tough exam with extra topics
“Having such a tough exam for distributors is counterproductive but any circumvention should concern the regulator,” said the second former Sebi board member, requesting anonymity. “Sebi cannot do much at this stage since the product is only a year old but they will keep a watch to ensure such a thing does not continue.”
Mint reported in December that the Association of Mutual Funds in India (Amfi) and Sebi are in talks to ease the SIF distributor exam. A key point of discussion was removing the portion on currency derivatives or introducing levels within the exam structure.
The NISM XIII (derivatives) exam consists of three sections: currency derivatives, equity derivatives and interest rate derivatives. However, currency derivatives are not relevant to SIFs at present as Sebi does not permit AMCs to launch SIF strategies related to forex. The exam is widely seen as significantly more challenging than the NISM VA certification required for mutual fund distributors.
The workaround has emerged at a time when SIFs have gained popularity among the wealthy. The category managed assets worth ₹10,620.45 crore as of March, a five-fold jump from October 2025, according to data from Amfi. There are a total of 16 SIF schemes in the country.
Structured training remains limited, the top executive at a distributor said. Manish Kothari, co-founder and chief executive officer of ZFunds, a mutual fund distributor said, “We run two five-to-seven day training batches each month with about 100 participants per batch, and the pass rates are only around 50%. So far, about 650–700 in our network have cleared it. Last month around 800 distributors took mock tests on our platform, steadily signaling rising interest in SIF among distributors.”