How are mutual fund distributors paid?

Trail only, and paid by the fund house

A distributor's pay is simple once you see it. The Asset Management Company pays a trail commission, calculated on the value of the investments the distributor services, and paid periodically for as long as you stay invested. There is no upfront commission, and upfronting the trail in cash or in kind is not permitted under Para 5.1.2.

Because it is a trail, the distributor is paid to keep you invested and looked after, not to generate a transaction. That alignment is the point.

You do not pay it separately

The trail is part of the Regular Plan's expense ratio, which the scheme deducts. You do not write the distributor a cheque. This is also why a distributor cannot earn commission on their own investments (Para 5.1.3): the pay is for servicing investors, not for investing.

We disclose exactly how this creates a conflict, and how we manage it, on our commission and conflict of interest page.

The 12-month cooling-off rule

If you move to a new distributor, that distributor earns no trail on your existing investments for twelve months (Para 6.1.3). If you switch back within that window, the clock restarts. The rule exists so that folios are not shuffled between distributors purely to chase commission, which protects you from being treated as a number.

You can still change your distributor freely; the rule affects the distributor's pay, not your right to move.

If you would like this explained against your own portfolio, talk to us.