Under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations and AMFI Code of Conduct, which practice is a critical 'DO' for a mutual fund distributor selecting schemes for a client?

[ A ]Recommending whatever scheme offers the highest temporary promotional commission to the distributor.

[ B ]Persuading the client to churn their entire portfolio every month into the latest top 1-month performer.

[ C ]Guaranteeing fixed 20% annual returns by concealing scheme risk factors from the client.

[ D ]Aligning scheme selection strictly to the client's financial goals, risk profile, and strategic asset allocation, while evaluating fundamental attributes, expenses, and tax implications.[ CORRECT ]

Takeaway

Option D is correct: Aligning scheme selection strictly to the client's financial goals, risk profile, and strategic asset allocation, while evaluating fundamental attributes, expenses, and tax implications.

Derivation

Under SEBI regulations against unfair trade practices and AMFI Code of Conduct, ensuring product suitability is a non-negotiable fiduciary duty. Distributors must: (1) Ensure recommendations match the investor's verified risk appetite, financial goals, and asset allocation, (2) Avoid chasing short-term past performance, (3) Evaluate the scheme's fundamental attributes and true-to-label portfolio behavior, and (4) Factor in the impact of exit loads, TER drag, and capital gains taxation. Failing to ensure suitability constitutes illegal mis-selling. This tests core professional advisory ethics. The common trap is prioritizing distributor commissions over client suitability.

Why the others fail

A — Recommending whatever scheme offers the highest temporary promotional commission to the distributor.

Recommending schemes based on distributor incentives violates fiduciary duties and constitutes severe regulatory mis-selling.

B — Persuading the client to churn their entire portfolio every month into the latest top 1-month performer.

Frequent churning of client portfolios to generate commissions violates SEBI regulations and destroys investor returns through loads and taxes.

C — Guaranteeing fixed 20% annual returns by concealing scheme risk factors from the client.

Promising guaranteed returns and concealing risk factors are criminal violations under SEBI Fraudulent and Unfair Trade Practices Regulations.