Unmasking loopholes: How bank employees sell mutual funds without certification

To meet aggressive sales targets, branch managers are often pressured to push these products, even if their employees lack the required certifications. This practice, while lucrative for banks, raises serious concerns about customer protection and the integrity of the financial sector.

The certification conundrum

For bank employees in India, clearing the NISM (National Institute of Securities Markets) 5A exam is a prerequisite to becoming an Employee Unique Identification Number (EUIN) holder, a necessary credential for selling mutual funds. This unique code, tied to each transaction, ensures accountability and transparency in the sales process. Moreover, they sell regular plan which has inbuilt commissions for services they provide.

The NISM exam is notably more challenging, with many employees needing more than one attempt to clear it. In contrast, the Insurance Regulatory and Development Authority of India (Irdai) exam, required for selling insurance, is generally seen as easier.

"People usually take two attempts to clear the NISM exam, whereas bank employees find it easier to pass the Irdai exam," said a relationship manager (RM) at a large bank, speaking on condition of anonymity.

The challenge is compounded by the bank’s internal pressures. Branches are often directed by headquarters to push specific products, including mutual funds. Employees who haven’t cleared the NISM exam are still expected to meet sales targets, leading some to enter their regular employee code instead of the required EUIN code during mutual fund transactions.

This workaround, though technically in violation of Association of Mutual Funds in India (Amfi) rules, allows them to contribute to the branch’s sales goals without risking immediate penalties. However, this practice can jeopardize the integrity of the sales process and ultimately harm clients.

The high stakes of low points

The pressure to sell is intensified by the disparity in rewards between mutual funds and other financial products. Moreover, if an employee doesn’t have the EUIN code and instead enters their employee code, they won’t earn the points that contribute to bonuses and increments.

“Frankly, some people use their colleagues' EUIN code instead since the points we get from MFs are quite low," one employee admitted. Despite this, non-EUIN employees still play a crucial role in helping the branch meet its overall targets.

An employee from another large bank revealed that they receive points for selling MFs even without an EUIN code, but added that the commission and points awarded for selling mutual funds are minimal compared to those for insurance products.

For every ₹100 of MFs sold, they typically earn a point credit of about 1, whereas selling an insurance product for the same amount can yield 50-60 points.

This significant difference in incentives drives employees to prioritize insurance over mutual funds, further complicating the ethical landscape of financial product sales.

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Some banks have implemented policies to address this issue. For example, the relationship manager mentioned earlier noted that their bank has implemented a policy over the past two years requiring all new hires to pass both the NISM and Irdai exams. Failure to do so usually leads to an extension of the standard six-month probation period, the person added.

Amfi should enforce stricter regulations with banks to ensure all employees follow the same rules. Selling MFs without proper knowledge and qualification could ultimately harm the client’s portfolio in the long run.