Distributor Commission on WebNotes

Trail commission in mutual funds

Sat, 16 May 2026 00:00:00 +0000

Trail commission is an ongoing, recurring fee paid by an Asset Management Company (AMC) to a mutual fund distributor as long as the investor’s assets remain invested through that distributor. Trail commission is expressed as a percentage per annum of the investor’s daily average Assets Under Management (AUM) and is accrued daily by the AMC, then paid to the distributor periodically (typically monthly). The trail-commission framework is the principal mechanism through which AMFI-registered distributors are compensated for distributing mutual fund schemes in India, and is the only permissible form of distributor remuneration following the SEBI ban on upfront commissions that took effect from 22 October 2018.

Direct vs regular plan TER differential in mutual funds

Tue, 12 May 2026 00:00:00 +0000

The direct vs regular plan TER differential is the difference in the total expense ratio (TER) between a mutual fund scheme’s direct plan and its regular plan. Both plans hold an identical portfolio managed by the same fund manager, but the regular plan charges an additional amount to compensate the distributor or investment adviser who sold the units. That extra charge reduces the investor’s net return by the same magnitude every year, compounding significantly over long holding periods.

Upfront commission in mutual funds, banned in 2018

Tue, 12 May 2026 00:00:00 +0000

An upfront commission in mutual funds was a one-time payment made by an AMC to a distributor at the time of initial investment as a percentage of the amount invested by the investor through that distributor. Unlike trail commission , which is paid on an ongoing basis as long as assets remain invested, upfront commission was paid immediately upon subscription irrespective of how long the investor held the investment.

SEBI banned upfront commissions on mutual fund investments through Circular SEBI/HO/IMD/DF2/CIR/P/2018/137 (dated 22 October 2018), with effect from 1 October 2018, transitioning the distribution industry to a trail-only commission model.