Mutual fund distributors earned Rs. 14,853 crores in mutual funds commission in FY23-24

[ShubhS9]

Every year, AMFI (Association of Mutual Funds in India), releases a report on commissions earned by mutual fund distributors. In the financial year 2023-24, the commissions earned by mutual distributors increased to Rs. 14,853 crores, a growth of ~23% year-over-year.

When you invest in mutual funds, you can choose between regular and direct plans. If you opt for regular plans, you have to pay commissions, which can be as high as 1%, charged every year on the invested amount, as long as you’re invested.

If you opt for direct plans, you have to pay no commissions. Btw, on Coin, we offer zero commission direct mutual funds.

---

Many investors think that 1% makes no difference and opt for regular plans instead of direct ones. It may not make a difference in the short term, but it surely does in the longer term. Commissions compound over time, the more your corpus grows, the more you pay in commissions. If you’re a DIY investor, it makes no sense to invest in regular plans.

It is important to keep the costs of your investments low. Costs are the biggest drags in the performance of your investments in the long run.

Here’s an example of the performance of direct (blue line) and regular (yellow line) plans of the SBI long-term equity fund over the last 5-years. The direct plan has outperformed the regular plan by ~11%.

---

---

Commissions earned by top distributors.

Commissions earned by top 20 distributors (Rs. crores).

NJ IndiaInvest Pvt Ltd	1,881.81	1,538.98
State Bank of India	1,039.33	905.46
HDFC Bank Limited	790.31	669.27
Prudent Corporate Advisory Services Ltd	736.24	583.04
Axis Bank Limited	596.62	542.25
ICICI Securities Limited	521.38	453.63
ICICI Bank Limited	399.90	397.82
Kotak Mahindra Bank Limited	324.48	297.28
ANAND RATHI WEALTH LIMITED	291.21	212.79
Hongkong & Shanghai Banking Corporation Ltd.	168.63	135.49
360 ONE DISTRIBUTION SERVICES LTD	147.47	123.64
Standard Chartered Bank	140.44	120.95
Julius Baer Wealth Advisors (India) Private Limited	139.27	111.10
HDFC Securities Ltd	127.05	96.69
Bank Of Baroda	123.58	99.82
Bajaj Capital Ltd.	116.95	102.40
Geojit Financial Services Ltd	94.90	81.72
JM Financial Services Limited	89.08	73.68
Wealth India Financial Services Pvt Ltd	86.24	75.80

---

---

If you are new to investing in mutual funds and all of this seems gibberish, Don’t worry, you can learn all about investing in mutual funds on Varsity:

Personal Finance - Mutual Funds – Varsity by Zerodha

[gowtham4]

@ShubhS9

Commissions earned by top 20 distributors

Can you share the source of this data?

[ShubhS9]

@gowtham4

Can you share the source of this data?

Here: https://www.amfiindia.com/commission-disclosure

[tallerballer]

Is NJ IndiaInvest that big? Never heard of them.

Are all of their clients retailers like Zerodha?

[SG_13]

Are these commissions from regular plan sustainable ?

I’m asking this because i don’t think most millennials or the Gen-Zs are investing through the regular plan.(I could be wrong).

Given that the access to information and technology is more now than ever before, this should naturally promote more DIY investors. And hence less investments through a regular plan.

Since most of the agents seem to be Banks, wonder if these commission revenues are generated by roping in the Gen-X or older.

I assume that the growth in the commissions is mostly attributable to the bull run, rather than through increase in the number of new clients.

As the commissions are charged annually on the value of the investment made through such distributors, naturally when the funds perform well, the commissions will increase.

PS:

I do understand that anyone who doesn’t have the time or interest to decide where to invest, would probably take the help of an RIA/distributors. But i don’t think the number of ppl choosing the regular mode would be that significant, albeit the amount invested by them may be high.

[gowtham4]

There is also another fact that most of the direct mfs are redeemed within 3 years since they dont have any hand holding. Not all will have the time to analyse, understand the markets and products themselves hence this churning happens.

[SG_13]

@gowtham4

hand holding

I don’t think regular folks are doing any hand holding either (barring a few maybe), more often than not, it is a mere 'Hand shake" point to a Fund to invest and don’t care later.

Top distributors seem to be banks (who also happen to be AMCs) who just promote it as a product to gullible customers, so that they can increase their bottom line, just like how ULIPs are being promoted in disguise without disclosing their true nature.

Why would a regular plan distributor expect a perpetual commission for a one time guidance or finger pointing ?

An expense ratio is justified given that there is active management of the fund, what does the distribution commission agent do to justify a yearly commission for a one time activity ?

I would be okay with paying a commission to a distributor of a regular plan, provided it was collected only once at the time of providing the guidance regarding the funds to invest.

Why get greedy and take a piece of the pie every year, irrespective of performance of the fund recommended ?

I just want to tag this thread which talks about the commission on regular plan

“Why should I consider the accumulated wealth? When pay commissions for the investment made in the past? MF investment is for the long term, it implies there should be no any meddling with the MF portfolio, so why pay commissions perpetually to the agent for nothing? What subsequent role is the agent playing here?”
Data from CAS - know how much commissions you pay

@gowtham4

analyse, understand the markets and products themselves hence this churning happens.

Okay, some may not understand market or the product, but It is not as if a distributors of a regular plan guarantees the performance of the fund that they recommend or take responsibility if the fund performs badly.

Mostly probably if the customer is not satisfied with a fund, they recommend another fund and charge commission on that, totally ignoring the fact that their initial recommendation was not that great.

[RajendraPatil]

ok… it is still difficult for many of us to understand nuisance of mutual funds. My own journey started with three mutual funds which were sold by three brokers which were not in line with what I wanted. One mutual fund I sold with 50% loss.

For ~15 years i continued my journey with one institutional broker with regular mutual funds. Needless to say I never got real financial advice from them.
Still I have nice corpus in mutual fund (by my leaving standard)

Today I do my investment in direct-growth plans only.

However now looking back I am grateful to those two institutional brokers and one individual brokers… Otherwise I could not have started my mutual fund journey.

Also even today for newbie mutual fund investment is daunting task. forget about nuisance like drawdown or different LTCG for different class of mutual funds … Even today opening SIP is so difficult on many fundhouse websites that you may not want to do it.

KYC is other teething issue which i think no one has understood. …At least me.

e.g. I had recommended my relative to do the direct investment in coin. After two years ecas statement form RTA says “no kyc complaint”… Raise Ticket with Zerodha… it gets closed with stern line " its not our fault" . Raise ticket with RTA… they call and say its aggregator who is not sending data…

Not that i am here to crib about coin but just wanted to emphasize issues DIY direct investors can face.

if there would have been regular plan, I could have sat on the head of distributor and got it solved .

I think in India there is still place for MF distributor. In a way they are helping uninitiated to build corpus… even if distributors are not 100% truthful in advice.

@SG_13

I would be okay with paying a commission to a distributor of a regular plan, provided it was collected only once at the time of providing the guidance regarding the funds to invest.

Why get greedy and take a piece of the pie every year, irrespective of performance of the fund recommended ?

you are right… however see the other side of coin. Now a days commission is minuscule compared to any other financial product . Trail is way to incentivize broker to keep his customer invested in long term (and hopefully with aim of wealth building as it helps broker)

I know this is radically different thought. But accidently I became DIY direct MF investor. it was more of luck that i could appreciate long term investment and role of MF. Everyone may not be so lucky. I think distributors are doing this job… which otherwise is missing wealth creation opportunity for many unaware individuals.

[SpacemanSpiff]

@SG_13

Since most of the agents seem to be Banks, wonder if these commission revenues are generated by roping in the Gen-X or older.

My guess is that many of these will be 3 in 1 type salary accounts and people will not take the hassle to create other accounts or even understand all of this. They will be busy with their careers. That’s how i started too but back then we only had regular funds and even entry loads.

In my case, there was nothing ICICI provided as service that i had any need of. I dont trust bankers anyway as they push their own agenda most of the time.

As soon as Direct funds were introduced i moved.

[SG_13]

@RajendraPatil

For ~15 years i continued my journey with one institutional broker with regular mutual funds

Back then, only regular plans existed, since direct plans were introduced only in 2013, you did not have a choice but to go for a regular plan.

A lack of choice/alternative back then, shouldn’t be a default reason to give undue credit to a regular plan, also the number of funds available too would have been less.

So instead of crediting them for the growth in corpus, it is the markets and your long term investment that generated those returns not a just a regular plan.

A proper comparison would be to check the performance of similar funds in the same time period and then conclude if the fund recommended by the agent was one among the top performers in that category.

And as your are aware the stocks in a given fund don’t remain unchanged, so even if they pointed u towards a fund, it is not as if the performance was guaranteed because this agent verified the stocks which are part of the fund. Funds rebalance their portfolio and what could be a great fund at the time of investing, may not be that great a few years later and vice versa.

@RajendraPatil

Needless to say I never got real financial advice from them.

This was exactly the point I was trying to make. They don’t provide any value addition later on, but still happily want to charge a commission as long u r Invested, that too on your accumulated wealth.

I don’t know if that is justifiable.

Am not against charging commission, I am against charging unfair commission, that too perpetually.

They don’t take responsibility, but want to have a share in the spoils

@RajendraPatil

Now a days commission is minuscule compared to any other financial product

I don’t know how u came to this conclusion that commissions are miniscule.

I would like to draw your attention to this post

@Bhuvan

The thing about commissions is that they compound over time. The more your corpus grows, the more you pay in commissions. Look at the illustration above. On a monthly SIP of Rs 5000, you would’ve paid Rs 12.3 lakhs as commission over 20 years. This is a simple illustration since you’ll obviously invest more as your income grows.

They can certainly create a big hole in your pocket.

Anyways, i just expressed my opinion in the above posts, there can be disagreements.

Ppl are free to choose what suits them, i only wish that they make an informed decision, rather than getting into a false marketing trap.

[tallerballer]

@gowtham4

There is also another fact that most of the direct mfs are redeemed within 3 years since they dont have any hand holding.

What is your source for this statement?

And just for clarifying, are you a MF distributor?

[trader_dude]

See how smart these distributors are. They earned it without doing anything.

[gowtham4]

@tallerballer

What is your source for this statement?

Check this link

Nine out of 10 direct plan investors exit their SIPs within five years -...

@tallerballer

And just for clarifying, are you a MF distributor?

I am an Authorised Person of Zerodha and have 6k plus clientele through me since last 8 years. I advocate direct fund only and personally also invest in direct mf only. But looking at the customer experience over the market cycles, not all have the conviction to hold it for long term.

I have seen HNI buying 50+ schemes together and also seen people buying mid cap and small cap for quick returns and also seen people redeeming for small downfall. Not that all require direct mf only. Otherwise there should be a fee only model where one should be ready to pay for advice (RIA) if one is not comfortable for recurring commission. Not all can be DIY investor with direct plans!

Mutual Funds: Direct plans turn 10; here’s what has changed for investors in...

Wh

[cvs]

@gowtham4

I am an Authorised Person of Zerodha

What does this even mean in this context? Authorized to do what?

[SG_13]

@nithin

Firstly, the entity “Sub-brokers” is getting phased out, exchanges don’t register sub-brokers anymore. The new term is called “Authorized Person (AP)”. Sub-broker used to be a separate registered entity with SEBI, whereas an AP is registered only with the exchange. What this means is that if an AP does any misdeed, unlike with sub-brokers SEBI can hold the main brokerage also responsible.

So if today, you want to go partner with a broker, you will be called an Authorized person, and not sub-broker.

Something i found on AP in the forum

[gowtham4]

Adding to the context
Listen to this part https://youtu.be/GCdBLl03LpI?si=YYeh-MLrJv8D2uAg&t=6690 where Zerodha also supports distribution model in way possible.