A Quick Look at the Commission Structure of a Mutual Fund Distributor

Mutual fund distributors, categorised as an important element under the business channel of or Financial Product Distributors, play a key role in India’s financial landscape. They guide investors, explain product choices, and help them choose schemes that fit their goals and risk levels. Asset management companies (AMCs) offer a financial product distributor commission for the work that they do. These earnings form an important part of their income. This blog explains how financial product distributor commissions work, their structure, and what affects them.

What is the commission of a Mutual Fund Distributor?

Commission of a Mutual Fund Distributor is the income that an agent receives from AMCs for selling mutual fund schemes to investors and supporting them. It benefits both sides. Investors get proper guidance. Distributors earn for offering that service.

The commission is usually calculated on the total amount invested or the assets under management (AUM). The rate often falls between 0.05% and 2%, depending on the fund house and scheme type.

Types of Commissions for Mutual Fund Agents

Mutual fund agents earn through different commission types:

Trail Commission

This is the main income source for distributors. It ranges from 0.1% to 2%, based on the fund house and the scheme.

Urban Outreach Commission

In the top 30 cities defined by AMFI, distributors receive fixed commissions for lump sum and SIP investments.

Additional Upfront Commission for SIPs

Some fund houses offer extra commissions for promoting new daily SIPs.

How Trail Commissions Are Calculated

Trail commissions differ based on the investor’s location.

T-30 Cities

These include the top 30 investment centres such as Mumbai, Bengaluru, Pune, Chennai, and Kolkata. The standard rate of commission is between 0.1% and 2% with no extra incentives.

B-30 Cities

These cities have fewer investors. AMCs offer higher benefits to attract participation. The standard rate of commission is between 0.1% and 2%. But distributors may get additional rewards. As per AMFI (2023), B-30 cities contribute only 17% of the total mutual fund AUM.

Example: Monthly SIP of ₹1,000 at 12% Return

Here is how yearly commissions may grow:

This shows how earnings rise as AUM and returns grow over time.

Factors Affecting Distributor Commissions

The financial product distributor commission structure can vary based on many operational and client-related aspects. Several factors influence how much a financial product distributor finally earns. These depend on client behaviour, AMC rules, and regulatory conditions.

Key factors include:

• AUM growth: Higher AUM directly increases trail commission.
• Client retention: Long-term clients generate long-term income.
• AMC slabs: AMCs offer different payout slabs based on performance.
• EUIN usage: Proper EUIN entry protects commission credit.
• Shift to direct plans: When clients move to direct plans, distributors stop earning on that AUM.

Commission Payout Process and Timeline

Most AMCs release commissions monthly. The brokerage structure may change each quarter depending on the scheme.

Commissions are part of an AMC’s cost of distribution. Investors may also notice loads or charges related to buying or selling mutual funds. These loads reward the advisors who manage transactions.

The standard mutual fund commission for agents ranges between 0.05% and 2%. Actual payout depends on:

• The AMC’s internal policies
• The specific mutual fund category
• The distribution channel used

SEBI Regulations on MF Commissions

Key rules related to mutual fund agent commission payouts are as follows:

• A 1% cap on Total Expense Ratio (TER) for equity schemes.
• No upfront commissions allowed since 2018.
• ARN renewal is mandatory for receiving payouts.
• Clear disclosure of all commissions to maintain transparency.

Commission Differences – Regular vs Direct Plans

Before we move on to learn the differences between commissions earned in direct and regular plans, here’s a quick look at what they mean:

• Regular Plan: In this mutual fund option, investors usually invest through an advisor or mutual fund distributor. The distributor offers suggestions, advice on funds, and onboarding support. The commission is earned directly from the fund house. 
• Direct Plan: Under this plan, investors directly associate with the fund house without the involvement of distributors or advisors.