Fund Selection Policy with Risk Profiling, Suitability & Unsuitability

Disclaimers

Objective

This document outlines the structured, documented, and repeatable process followed by ETHIX (ARN-66910) for identifying, evaluating, and shortlisting mutual fund schemes for client distribution. Our selection process is based entirely on objective analysis, risk-category mapping, and compliance requirements. Scheme selection is never driven by commission incentives.

Fund Selection Process Flow

Our fund selection follows this step-by-step process:

Step	Action	Details
Step 1	Identify Investment Category	Based on client’s goal, investment horizon, and assessed risk profile, identify the suitable MF category (Large Cap, Mid Cap, Small Cap, Flexi Cap, Hybrid, Debt, ELSS, Index, etc.).
Step 2	AMC Screening	Evaluate AMC reputation, total AUM size, regulatory track record (no SEBI action), fund management team stability, and operational efficiency.
Step 3	Performance Analysis	Compare rolling returns across 1-year, 3-year, and 5-year periods against the scheme’s benchmark index and category average. Avoid relying only on point-to-point returns.
Step 4	Risk-Adjusted Return Analysis	Evaluate Sharpe Ratio (return per unit of risk), Sortino Ratio (downside risk), Standard Deviation, and Maximum Drawdown to assess risk-reward balance.
Step 5	Expense Ratio Comparison	Compare expense ratios within the peer category. Lower expense ratio is preferred as it has a significant impact on long-term wealth creation.
Step 6	Fund Manager Review	Assess fund manager’s tenure with the scheme, track record across market cycles, and investment style consistency. Flag schemes with more than 2 fund manager changes in 3 years.
Step 7	Portfolio Quality Check	For equity funds: check sector concentration, single-stock exposure, and market-cap allocation. For debt funds: check credit quality (minimum AA-), maturity profile, and concentration risk.
Step 8	SEBI Riskometer Mapping	Map each shortlisted scheme to its SEBI Riskometer category (Low to Very High) and match to client risk profiles (Conservative / Moderate / Aggressive).
Step 9	Approval	Final recommended scheme list reviewed and approved before being used for client distribution. No scheme is recommended without sign-off.
Step 10	Yearly Review	Recommended list reviewed every year. Underperforming schemes replaced based on the same objective criteria. Ad-hoc reviews triggered by major market events or regulatory changes.

Exclusion Criteria

The following are automatically excluded from our recommended list: (a) Schemes from AMCs under SEBI regulatory action or warning; (b) Schemes with high portfolio concentration in a single stock or sector beyond category norms; (c) Debt schemes with significant exposure to below-investment-grade (below AA-) securities; (d) Schemes with more than 2 fund manager changes in the last 3 years; (e) Close-ended or interval schemes unless specifically required for a client’s goal; (f) Mutual Fund products with opaque strategy or inadequate risk disclosure.

Data Sources

AMC factsheets and monthly portfolio disclosures; Value Research and Morningstar India for performance data and fund ratings; AMFI website for NAV and AUM data; SEBI Riskometer classification for risk categorization; SEBI Mutual Fund filings portal for SID/SAI/KIM documents.

Suitability Mapping

Every shortlisted scheme is mapped to one of three client risk categories: Conservative (score 0-35%), Moderate (score 36-65%), or Aggressive (score 66-100%). No scheme whose SEBI Riskometer category exceeds the client’s assessed risk level is recommended. If a client insists on an unsuitable scheme, the Execution-Only process is followed with written unsuitability communication and client consent as per our SOP.

Suitability Matrix (NFP – Need-based Fund Planning)

Client Risk Profile

Short Term (< 3 Years)

Medium Term (3–7 Years)

Long Term (> 7 Years)

Conservative (0-35%)

Cautious Investor

Liquid Funds, Overnight, Ultra Short Duration, Money Market, Arbitrage

Equity: 0-10% Debt: 90-100%

Short Duration, Banking & PSU, Corporate Bond, Conservative Hybrid, Equity Savings

Equity: 10-25% Debt: 75-90%

Conservative Hybrid, Balanced Hybrid (limited), Large Cap (up to 15%), Gilt, Target Maturity

Equity: 15-30% Debt: 70-85%

Moderate (36-65%)

Balanced Investor

Ultra Short Duration, Conservative Hybrid, Equity Savings

Equity: 15-30% Debt: 70-85%

Balanced Hybrid, Aggressive Hybrid, Multi Cap, Large & Mid Cap

Equity: 40-60% Debt: 40-60%

Flexi Cap, Multi Cap, Large & Mid Cap, ELSS, Value/Contra

Equity: 60-75% Debt: 25-40%

Aggressive (66-100%)

Growth Investor

Equity Savings, Aggressive Hybrid, Dynamic Asset Allocation

Equity: 25-40% Debt: 60-75%

Flexi Cap, Mid Cap, Large & Mid Cap, Focused Fund

Equity: 60-80% Debt: 20-40%

Mid Cap, Small Cap, Sectoral, Thematic, International

Equity: 75-100% Debt: 0-25%

Unsuitability Declaration

If a client insists on investing in a scheme that exceeds their risk profile ceiling, a written Unsuitability Declaration is obtained. This declaration clearly states that: (a) The investor has been informed that the chosen scheme does not match their assessed risk profile; (b) The distributor does not recommend this particular investment; (c) The investor is proceeding at their own risk and volition against the distributor’s recommendation. The declaration is signed by the investor and maintained in records as per AMFI DDQ requirements.

Conflict of Interest Declaration

ETHIX declares that: (a) We do not have any proprietary relationship with any AMC; (b) Our fund recommendations are not influenced by commission structures; (c) We maintain a documented fund selection process that is auditable; (d) Commission disclosure is made to every investor at the time of investment.

Risk Factors – Investments in Mutual Funds are subject to Market Risks. Read all scheme related documents carefully before investing. Mutual Fund Schemes do not assure or guarantee any returns. Past performances of any Mutual Fund Scheme may or may not be sustained in future. There is no guarantee that the investment objective of any suggested scheme shall be achieved. All existing and prospective investors are advised to check and evaluate the Exit loads and other cost structure (TER) applicable at the time of making the investment before finalizing on any investment decision for Mutual Funds schemes. We deal in Regular Plans only for Mutual Fund Schemes and earn a Trailing Commission on client investments. Disclosure For Commission earnings is made to clients at the time of investments. Option of Direct Plan for every Mutual Fund Scheme is available to investors offering advantage of lower expense ratio. We are not entitled to earn any commission on Direct plans. Hence we do not deal in Direct Plans.

AMFI Registered Mutual Fund Distributor (ARN-66910)
Sole Proprietorship of Mehran Felfeli
MF Distribution Validity: 09-Sept-2008 to 13-Mar-2029
Registered Office: Bizzbay Commercial Complex, Office 151, Off NIBM Road, Pune – 411048, Maharashtra
Email: mehran@ethix.net.in | Website: www.ethix.net.in

Transaction Platform: NSE Invest MF Platform | Backoffice: Investwell
Proprietor: Mehran Felfeli
Grievance Redressal Officer: Mehran Felfeli

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing a portfolio that suits your needs. The Firm receives commission from Asset Management Companies / issuers for distribution of Mutual Fund products in Regular Plans, as permitted under SEBI and AMFI regulations. Such commissions may include trail or other permitted forms. No commission or fee is charged directly to investors for Mutual Fund or Mutual Fund distribution. ETHIX makes no warranties or representations, express or implied, on products offered through the platform of ETHIX. We provide incidental advisory services only. For investment advice, please consult a SEBI-registered Investment Adviser. It accepts no liability for any damages or losses, however caused, in connection with the use of, or on the reliance of its product or related services. Terms and conditions of the website are applicable.