SEBI's Singh: MFDs act as 'behavioural anchor' for investors

Singh also highlighted the growing role of distributors beyond the top cities. Towns outside the top 30, known as B-30 locations, now account for almost 19% of industry AUM, up from around 16% five years ago. Distributors can expand participation further by offering basic financial guidance in smaller towns, he said.

Two regulatory changes could widen the distributor's role. SEBI, working with the National Institute of Securities Markets, has simplified the certification framework for Specialized Investment Funds. Distributors with the relevant certification can now sell both mutual funds and SIFs.

The regulator is also consulting on a proposed mutual fund-only portfolio management service. Under the plan, a PMS would invest exclusively in direct plans of mutual funds, including ETFs and SIFs. The minimum investment would be ₹25 lakh, half the ₹50 lakh threshold for conventional PMS.

Singh said the framework could allow larger distributors to manage an investor's entire mutual fund portfolio, covering asset allocation and ongoing scheme selection, moving beyond recommending individual schemes.

He warned about the risk of mis-selling. Some investors may not realise immediately that a product was unsuitable for their needs, he said.

Distribution should remain focused on investor interests rather than simply gathering assets or acquiring customers, Singh added. "Ethical distribution therefore has to remain at the centre of the investor relationship."