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Prudent Corporate

24 Aug 2024

Everything You Need To Know About Mutual Fund Distributor Commission in 2024

Mutual fund distributors help investors invest in mutual funds. For this, the asset management company pays a fee to the distributor referred to as the mutual fund distributor commission for their services.  They receive this from AMCs for distributing their mutual fund products. This commission normally constitutes a part of the invested amount. Mutual fund distributor income is the primary source of income. Any mutual fund distributor, or a newcomer to the field, should know how commissions work.  This blog will discuss the Mutual Fund Distributor Commission in 2024.  It will also cover factors affecting the commission. What is a Mutual Fund Distributor Commission? In the mutual fund distribution business, the main income is the commission that asset management companies pay for distributing their mutual funds.  Throughout the fiscal year 2022–2023, the net commission received by top mutual fund distributors increased by 16 per cent to Rs 12,049 crore as the assets under management (AUM) of mutual funds steadily increased. Here are the factors that determine the value of the mutual fund commission. A mutual fund's type (Equity, Debt, or Hybrid) influences its commission. Commission rates on equity funds are higher than on debt or hybrid funds. Geographic location of the distributor. Areas with less competition or greater investor interest offer higher commissions. Total investment managed by a distributor. It is typically called Assets Under Management(AUM).  The Type of Mutual Fund Distributor Commission 1. Upfront Commission Distributors earn a one-time fee called the upfront commission. They get it for helping investors invest in mutual fund schemes. The commission is a percentage of the investor's investment. Currently, AMFI has restricted AMC from paying any upfront commission. 2. Trail Commission Trial commission in a mutual fund is paid out regularly—typically once a year and distributors have the option to opt for monthly payment of commission—as long as the investor retains money in the mutual fund.  The commission percentage relies on AUM. Trail commissions motivate distributors to build strong, lasting ties with investors. They also encourage ongoing support.   3. Commission based on Cites T-30 Cities In India’s top 30 cities, fund houses set commission fees, and these fees vary from one to another. T-30 cities include Bangalore, Delhi, Mumbai, Pune, Kolkata, Ahmedabad, Chennai, Hyderabad, Vadodara, Jaipur, Surat, Lucknow, Nagpur, Kanpur, Nasik, Indore, Coimbatore, Patna, Chandigarh, Bhopal, Ludhiana, Rajkot, Udaipur, Bhubaneswar, Guwahati, Ranchi, Jamshedpur, Dehradun, Varanasi, and Agra. The Association of Mutual Funds in India (AMFI) has the right to revise the list of cities including in T-30 B-30 Cities B-30 cities are those outside the top 30. Distributors get extra incentives for clients from these cities. They earn an additional commission on first-year investments, besides the regular rate. The B-30 commission structure isn't in force anymore. Mutual Fund Commission Calculation Upfront Commission Calculation: Upfront commission = Investment amount × Commission rate Trail Commission Calculation: Trail commission = Number of units * NAV as on determined date * percentage of the commission * No. of days invested(in a month) / 365 or 366  The Mutual Fund Distributor Commission Payout AMCs pay distributors commissions on mutual fund schemes.AMCs pays directed to the distributor’s bank account. The AMCs pay commissions to the distributors monthly or yearly The rates for the various schemes, which they share with the distributors, serve as the basis for this.  The AMC emails the distributors each month. It has information on the average AUM, new investments, ongoing SIPs, liquidated holdings, and other transactions under their ARN. AMC also specifies the commission it must pay and how to calculate it. As per the details provided by the AMC, a distributor must file the necessary GST upon receiving their payout. Conclusion Mutual fund distributors are key intermediaries in investing. They offer basic services to everyday investors.  The mutual fund distributor commission structure differs due to regulations and incentives.  This change in mutual fund commission aims to help investors. It also aims to expand the market. Investors and distributors must understand the new commission structure.