How mutual fund distributor commission works

Trail only — no upfront

SEBI moved the industry to a full trail model with effect from October 2018, banning upfront commission and requiring all distributor payments to be made from the scheme's expense ratio rather than from the AMC's own books. In practice this means:

• Commission accrues daily on the market value of your clients' holdings, and is paid monthly.
• A new ₹10 lakh investment pays you nothing on day one — it starts earning trail from day one instead.
• When markets rise, your income rises with them, without a single new client.
• When a client redeems, that income stops immediately and permanently.

The consequence is that a distributor's income is an annuity on a book, not a series of one-off sales. Retention is worth more than acquisition, and the practices that grow fastest are usually the ones that lose the fewest clients — not the ones that add the most.

What the rates look like

Rates are negotiated between each AMC and each distributor and vary by scheme, by fund house and by the size of your book, so there is no published national table. The ranges below are what distributors commonly see; treat them as orientation, not quotation.

Larger schemes pay less. Because commission comes out of the total expense ratio, and SEBI's TER slabs step down as a scheme's assets grow, the same fund pays a lower trail at ₹50,000 crore than it did at ₹5,000 crore. Distributor income per rupee of AUM has been drifting down for years for exactly this reason — and the honest response is a bigger, better-serviced book rather than chasing rates.

Where the money actually comes from

Your commission is paid out of the scheme's Total Expense Ratio — the annual charge deducted from the fund's NAV. SEBI caps the TER in slabs that tighten as the scheme's assets under management grow, and the AMC divides what it collects between fund management, operations, and distribution.

This is why the difference between a regular plan and a direct plan is visible in the NAV. Direct plans carry the same portfolio and the same manager, with the distribution component stripped out of the TER — typically a difference of roughly 0.5% to 1% a year in equity funds. The investor in a regular plan is paying that difference, and it is paying for you.

How and when you are paid

• Each AMC computes your trail on daily average assets and credits it monthly, usually within the first half of the following month.
• You receive a brokerage statement per AMC — which means a distributor empanelled with fifteen fund houses reconciles fifteen statements a month, in fifteen formats.
• GST applies to distributor commission. Distributors below the registration threshold are generally covered by reverse charge, with the AMC discharging the liability; above it, you register and invoice. Take an accountant's view on your own position.
• TDS is deducted where applicable, and reflected in your Form 26AS.
• Commission on assets that move to another ARN moves with them.

Reconciliation is the part that surprises new distributors. Nobody hands you a single number for what you earned this month; you assemble it. Knowing which clients drive which share of your income — and noticing when one of them redeems — is a monthly discipline, not an annual one.

Answering the direct-plan question

Every distributor gets asked it eventually: why should I pay you when the direct plan is cheaper? Deflecting the question loses the client slowly. Answering it plainly usually keeps them.

• State the cost honestly, in rupees, on their actual portfolio. Vagueness reads as evasion.
• State what it buys: goal planning, the rebalancing they will not do, the redemption they were talked out of in March 2020, the paperwork you handle, the person who answers when their SIP fails.
• Show the work. A client who has received a written annual review three years running does not ask this question.
• Accept that a genuinely self-directed, disciplined investor is better off direct — and that they were never going to be a good client anyway.