Mutual fund mis-selling red flags to watch for
Key facts
- No mutual fund can offer assured or guaranteed returns, so treat any such promise as a warning sign (Code 4(g)).
- Churning, moving you between schemes to generate commission, is prohibited (Code 1(e)).
- Splitting one application into several to earn more is prohibited (Code 4(i)).
- A distributor must not fill their own contact details into your application in place of yours (Code 4(i)).
Two shapes of mis-selling
Almost all mis-selling takes one of two shapes: a promise that cannot be kept, or a transaction that quietly serves the seller more than you. Once you can see those two shapes, the specific tricks are easy to spot.
The promise that cannot be kept
No mutual fund can offer assured or guaranteed returns, and no distributor is allowed to sell on them (Code 4(g)). So if you are told what you will make, shown a confident projection, or offered a "sure" outcome, that is your signal to stop. There is no such thing as a single best fund that is right for everyone, either; that phrase is a sales line, not a fact.
The transaction that serves the seller
- Churning. Being moved between schemes more often than your goals need, so fresh commission is earned. Prohibited under Code 1(e).
- Application splitting. Breaking one investment into several applications to earn more. Prohibited under Code 4(i).
- Your form, their details. A distributor entering their own contact details in place of yours, so the fund house's letters reach them and not you. Prohibited under Code 4(i).
- The blank EUIN. Being asked to sign an execution-only declaration for a scheme that was, in fact, recommended to you.
What to do if you see one
None of these should be tolerated, and none of them are your fault. Read what your distributor must do to confirm the duty being broken, then see how to complain. If you would like a second opinion before acting, talk to us.
Frequently asked questions
What is the biggest single red flag?
A promised return. No mutual fund can offer assured or guaranteed returns, so anyone who tells you what you will make is either mistaken or misleading you. This alone is reason to stop and ask questions.
What is churning?
Churning is moving you in and out of schemes more than your goals require, so the distributor earns fresh commission. It is prohibited under the Code. If your portfolio changes often without a clear reason, ask why.
Why would a distributor put their own details on my form?
If a distributor enters their own phone or email in place of yours, you stop receiving the fund house's communications directly, which keeps you dependent and in the dark. The Code prohibits it. Your contact details should be yours.
This is general information, not a recommendation for your situation. If it would help to talk it through, we are happy to. Talk to Nico Wealth.
The information on this website is general and educational. It is not financial, tax, or legal advice, and not a recommendation for your situation. We try to keep it accurate and up to date, but it may contain errors or become outdated. Please verify important details from official sources, and consider your own circumstances, before acting.
Sources
- AMFI Master Circular for Mutual Fund Distributors, AMFI/MFD-CIR/32/2025-26 (14 January 2026) · Code of Conduct 1(e), 4(g), 4(i)
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