Mutual Fund Distributor Commission Structure

Understand the MF Agent Commission Structure

The Mutual Fund Distributor or Agent’s Commission is nothing but the fee an agent receives from the AMCs for selling mutual fund schemes.The mutual fund distributor’s commissions vary across different mutual fund schemes and asset management companies. Each AMC has its own structure for paying commissions to distributors and has also characterized varied percentages of commissions for different categories - debt, equity, hybrid categories etc. within the range of 0.1 percent to 2 percent. The AMCs pay the commission amount based on the total AUM (Asset Under Management), which is calculated on an annual basis  (this includes SIPs for the year & lump-sum investments) and is paid to the distributors on a monthly basis. The commission payable on the scheme by the AMC is part of the mutual fund scheme's expense ratio which also includes other costs like fund management, administration, marketing, accounting etc. 

Also, the commission structure differs across the cities.

The primary source of commissions for the mutual fund distributor includes:

1. Trail Commission

This commission is usually the primary source of earnings for the mutual fund agents. Depending upon the mutual fund schemes and AMCs, the commission structure varies from 0.1 per cent to 2 percent. The commission structure for the selling of mutual funds include trail commissions paid for:

a. T-30 Cities- This is the commission structure made for selling the schemes in the T-30 i.e Top 30 cities as specified by the AMFI.

For lump sum or SIPs in mutual funds, the AMCs will be paying the same specified commissions to the distributors, no additional bonus will be given on selling the schemes for the first time to the investor.(Earlier, distributors were paid an upfront fee on selling the schemes for the first time). Also, every quarter the commission is subject to revisions from the AMCs or fund houses.

Top 30 cities as per AMFI- Mumbai, Delhi, Bengaluru, Kolkata, Pune, Chennai,

Ahmedabad, Hyderabad, Udaipur, Vadodara, Jaipur, Surat, Kanpur, Lucknow, Nagpur, Chandigarh, Ludhiana, Indore, Nasik, Coimbatore, Patna, Rajkot, Bhopal, Jamshedpur, Bhubaneshwar, Guwahati,Raipur, Ranchi, Dehradun, Aurangabad. 

Note- The list of top 30 cities are also subject to revisions by the AMFI.

b. B-30 Cities- For the selling of schemes to investors in the B-30 cities (below the top 30), the AMCs offer special incentives i.e. Master B-30 Incentive commissions where AMCs pay additional incentives for the first year on new investments along with the usual commission rates specified for the particular schemes.

This structure of the trail commissions i.e varied commissions for the Top-30 & Below-30 cities in first year is formed to incentivise investments in the cities below the Top-30 cities.This provides a whole lot of opportunities to agents or distributors in small cities to higher commissions. As the share of B-30 cities in total AUM of the Mutual fund industry is very low, agents can also benefit from the low penetrated markets outside Top-30 cities.

2. SIP additional commission (upfront)

Some of the mutual fund companies also offer special commissions (upfront) to the mutual fund agents for selling the new SIP investments in MF schemes. This additional commission is only paid for the first SIP amount (not on AUM).

Payout of Commissions

Commissions on mutual fund schemes are paid out to the distributors by AMCs directly into their associated bank account which was shared at the time of empanelment. The AMCs make monthly payments of commissions to the distributors based on the rates for different schemes highlighted in the “broker structure”, which is shared with the distributor.

Every month, the AMC sends information through emails to the distributors regarding the average AUM, new investments, ongoing SIPs, holdings liquidated, and other transactions under their ARN. Along with that, the document also mentions the amount of commission payable (including its break-up) by the AMC.

When a distributor receives his payout, he needs to file the GST applicable as per the information shared by the AMC. After filing GST, the distributor has to share a copy of the invoice with the fund house.

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