As you make investments in standard mutual fund plans, you pay a certain amount of commission to your mutual fund agent as set by the rules and payout structure. For a lot of individuals, the commission on mutual funds is the main and only income for agents and their livelihood depends solely on it.

Investments in mutual funds require in-depth research and knowledge. A distributor of mutual funds helps Indian clients acquire and sell mutual funds. The distributors of mutual funds are paid by encouraging investment in the mutual fund scheme. They also provide guidance to investors regarding the various programmes provided by various mutual funds.

Due to their registration with SEBI, mutual funds are recognized as being secure (the Securities and Exchange Board of India). The distributors of mutual funds also assist investors in executing investment transactions. Investments, changing between mutual funds, and redemption fall within this category. You can read in-depth about mutual fund distributor commission online as it is totally transparent and the information is easily available on the internet.

What are the criteria for becoming a distributor of mutual funds?

Any person who is at least 18 years old can work as a distributor or agent for mutual funds. Additionally, the candidate must possess a three-year diploma to be eligible for class 12 or class 10.

To become a distributor of mutual funds, one must successfully complete the NISM Series V-A: Mutual Fund Distributors Certification. SEBI mandates that any company or person engaged in the promotion and sale of mutual funds obtain the NISM Certification.

Understand the Commission Structure of MF Agents

The term “mutual fund distributor commission” or “agent’s commission” refers to the fee that AMCs pay to agents who sell mutual fund products. Each AMC has a unique method for paying its mutual fund distributor commission, and it has set different rates for different categories, such as debt, equity, hybrid, and others, ranging from 0.1% to 2%.

Depending on the total AUM (Asset Under Management), which is calculated annually and disbursed to the distributors on a monthly basis, the AMCs pay the mutual fund distributor commission amount (this includes SIPs for the year and lump-sum investments). The commission structures also differ between cities. The primary sources of the mutual fund distributor commission are:

Trail Commission

The AMC pays a mutual fund distributor commission to agents, brokers, and banks when you invest in mutual funds through them. The trailing commission is the name given to this charge because it is paid annually.

It varies depending on the scheme and financial institution. For distributor commissions and varying commission percentages for other categories, such as debt, equity, and hybrid categories, each AMC has its own commission structure. One may estimate it between 1% and 1.5% for equities funds, though it may also be higher in some circumstances and the figures for debt funds are comparatively lower.

For the top 30 cities (T-30) and additional cities (B-30) outside of the top 30 cities, SEBI has outlined a commission structure. For inflows from retail investors outside the top 30 cities, SEBI has permitted an additional total cost ratio (TER) of 0.30% (30 basis points) (B-30 cities). An additional 0.30% may be given to MFDs as a commission for transactions originating from retail investors in B-30 cities.

According to the instructions provided by the AMC, a distributor must register the GST when he receives his reimbursement. The distributor must give the fund house a copy of the invoice following GST filing.

From plan to plan and company to company, the mutual fund distributor commission is different. For ELSS (tax saving plans), it is normally high, for equities, it is medium, and for debt mutual fund plans, it is the lowest.