Fund Selection & Suitability Policy

Shah Financial Services follows a structured and documented process for mutual fund scheme selection and investor suitability assessment, in compliance with SEBI Master Circular for Mutual Funds, AMFI Master Circular for MFDs (14-Jan-2026), and AMFI Code of Conduct for Mutual Fund Distributors.

This policy outlines our methodology, framework, and safeguards to ensure that every recommendation made to an investor is suitable, transparent, and free from conflict of interest.

1. Scheme Selection Process

Our scheme selection follows a systematic, six-step approach designed to align investment recommendations with each investor's unique financial situation and goals:

• Determine the investor's risk profile through our Risk Profiling Questionnaire (12 questions, 6-tier classification).
• Identify the appropriate asset class (Equity / Hybrid / Debt / Liquid) based on the assessed risk category and stated investment horizon.
• Select the mutual fund category within the asset class — e.g., Large Cap, Flexi Cap, Balanced Advantage, Aggressive Hybrid, Short Duration, Banking & PSU Debt, Liquid, etc.
• Evaluate schemes within the chosen category based on objective criteria including: fund house track record, scheme performance across multiple market cycles (1-, 3-, 5-, and 7-year rolling returns vs. benchmark), Base Expense Ratio (BER), fund manager tenure and experience, Assets Under Management (AUM) consistency, portfolio quality metrics (concentration, turnover, credit quality), and risk-adjusted returns.
• Recommend scheme(s) that match the investor's risk profile, investment horizon, and financial goals — with no overlap and appropriate diversification.
• Document the recommendation with detailed rationale and obtain investor acknowledgement before execution.

2. Risk Profiling

Every investor is required to complete a Risk Profiling Assessment before any mutual fund recommendation is made. This is a mandatory pre-requisite for both new and existing client transactions where the risk profile is more than 12 months old.

Our 12-question Risk Profiler categorises investors into 6 risk tiers (Very Conservative, Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive / Very Aggressive) based on factors including: age, investment horizon, primary investment goal, investment experience, income stability, loss tolerance, MF knowledge level, existing equity/MF allocation, reaction to market volatility, liquidity needs, dependents/financial responsibilities, and source of investment funds.

The risk profile is reviewed periodically (annually) or whenever there is a material change in the investor's financial situation — such as marriage, childbirth, job change, retirement, inheritance, major liabilities, or significant change in income.

3. Suitability Framework

Scheme suggestions are aligned with the investor’s assessed risk profile. No scheme from a higher risk category is considered during the distribution process.

Our 6-tier × 3-horizon Suitability Matrix (Short Term <3Y, Medium Term 3-5Y, Long Term >5Y) maps each risk profile to specific MF categories. Asset allocation guidance is also provided per tier (e.g., Very Conservative: 0% Equity / 90-100% Debt; Aggressive: 80-100% Equity).

If an investor insists on a scheme that exceeds their risk tolerance, a Written Unsuitability Communication (WUC) is issued and the investor's written acknowledgement is obtained before proceeding as an Execution-Only (EO) transaction — see Section 4 below.

4. Unsuitability & Execution-Only Process

When a transaction does not match the investor's risk profile, the following process is mandatory:

• The distributor informs the investor in writing that the requested product is not suitable based on their assessed risk profile.
• A Written Unsuitability Communication is issued specifying the reasons for unsuitability, the investor's current risk profile, and the recommended alternative categories.
• The investor must acknowledge in writing that they understand the unsuitability warning and wish to proceed despite this caution.
• An explicit Execution-Only consent is obtained from the investor confirming voluntary, informed, and uncoerced decision-making.
• The transaction is logged as 'Execution-Only' in the dedicated EO Register with cross-reference to the WUC and consent forms.
• No additional charges are levied on Execution-Only transactions. Standard transaction charges (if any), as per SEBI guidelines, may apply.
• Shah Financial Services accepts no responsibility for losses arising from Execution-Only transactions, and this is communicated clearly to the investor.

5. Conflict of Interest

Shah Financial Services does not have any affiliation with, or ownership interest in, any Asset Management Company. Scheme recommendations are made solely based on the investor's profile and the scheme's merit.

Commission received from AMCs does not influence scheme selection. We deal in Regular Plans only and earn trail commission as embedded in the scheme's Base Expense Ratio (BER) — there is no upfront commission, no incentive trips, no gifts, and no non-cash benefits accepted from any AMC.

Commission rates are transparently disclosed on our Commission Disclosure page and are updated quarterly.

Where conflicts of interest may potentially arise (e.g., new AMC schemes, higher-commission categories), the GRO conducts an independent review to ensure recommendations remain investor-centric.

6. Documentation & Audit Trail

Every recommendation, risk profile assessment, suitability determination, and unsuitability communication is documented and retained for a minimum of 8 years per SEBI/AMFI/PMLA regulations. Records are maintained in Redvision/Advisorkhoj backoffice systems and Sanchay CRM with role-based access controls.

7. Policy Review

This policy is reviewed annually or whenever there is a material change in SEBI/AMFI regulations. Any updates are communicated to all partners and EUIN holders, and the revised policy is published on the website.