How a Distributor Is Paid

Who pays, and from where

A distributor is paid commission by the fund house, not through a bill sent to the investor. The money comes out of the scheme's expenses: distribution charges are one component of the base expense ratio of the regular plan. That is why the regular plan of a scheme has a higher expense ratio than its direct plan, which carries no distribution commission.

Because the commission is charged within the scheme, the investor bears it through the NAV of the regular plan. The amount paid is not hidden: the half-yearly consolidated account statement shows the commission paid to the distributor in rupees.

Trail commission

Commission is paid as trail: a continuing payment worked out on the investor's assets for as long as they stay invested. If the units are redeemed, the trail on them stops.

A one-time payment at the time of investment is upfront commission. Under SEBI's rules the model is full trail: upfront commission is not allowed, and neither is upfronting, which means paying future trail in advance.

The two narrow exceptions

First, for SIPs of up to ₹3,000 a month per scheme by investors new to the mutual fund industry, identified by PAN, up to 1% a year may be paid in advance for at most three years. The advance is recovered from the distributor if the SIP stops.

Second, since 1 March 2026 an additional commission may be paid for new individual investors from smaller (B-30) cities and for new women investors from any city. It is 1% of the first lump sum, where the investment stays for a year, or 1% of the first-year SIP, capped at ₹2,000. It is paid from the amount fund houses set aside for investor education and is not charged to the scheme as an extra expense.

Two charges that no longer exist

Older material mentions a transaction charge of ₹100 or ₹150 that a distributor could have deducted from an investment. SEBI's circular of 8 August 2025 abolished it, so nothing is deducted on this account. Stamp duty of 0.005% still applies to a purchase; that is a government levy, not a payment to the distributor.

Schemes could also once charge extra expenses for inflows from B30 cities. That allowance ended on 31 October 2025, and the expense rules in force from 1 April 2026 contain no such add-on.

Rules at a glance

Key points

• Commission is paid by the fund house out of the regular plan's expenses; the investor is not billed separately and bears it through the NAV.
• It is paid as trail commission on assets that stay invested; upfront commission and upfronting of trail are not allowed.
• Exceptions: small SIPs by first-time investors, and a capped additional commission for new B-30 and new women investors since 1 March 2026.
• The ₹100 or ₹150 transaction charge was abolished by SEBI's circular of 8 August 2025.
• The extra expense allowance for inflows from B30 cities ended on 31 October 2025.

Common misunderstandings

• The investor does not pay the distributor a separate fee: commission is paid by the fund house out of the regular plan's expenses.
• A transaction charge is not deducted from an investment any more: it was abolished on 8 August 2025.
• The additional commission for new B-30 and new women investors is not the old B30 expense allowance: it is capped at ₹2,000 and is not an extra expense on the scheme.

Questions people ask