In a regulatory move impacting mutual fund distribution, the Securities and Exchange Board of India (SEBI) has barred mutual funds from paying transaction charges to distributors where the minimum subscription brought in is ₹10,000. This decision, announced via a circular issued on Friday, marks the end of a practice previously permitted under the mutual fund regulatory framework.
The capital market regulator clarified that such transaction charges cannot be paid to distributors, as they are entitled to remuneration by the Asset Management Companies (AMCs). In its circular, SEBI stated:
“Based on the feedback received from the industry and considering that distributors as agents of AMCs are entitled to be remunerated by the AMCs, the charges or commission, as prescribed under paragraph 10.4.1.b and paragraph 10.5 of Master Circular, shall be done away with.”
This decision follows a public consultation held in May 2023, followed by an industry consultation in June this year.
Under paragraph 10.4.1.b of the Master Circular for mutual funds: “The scheme application forms shall carry a suitable disclosure to the effect that the upfront commission to distributors will be paid by the investor directly to the distributor, based on his assessment of various factors including the service rendered by the distributor.”
Paragraph 10.5 had earlier allowed AMCs to pay a transaction charge of ₹100 per ₹10,000 for investments brought from existing investors. Additionally, as an incentive to attract new investors, AMCs were permitted to pay ₹150 as a transaction charge for every ₹10,000 worth of subscription to the distributors.
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SEBI’s latest directive eliminates the practice of paying transaction charges to distributors for qualifying investments, reinforcing the principle that distributor remuneration should come directly from AMCs.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Mutual Fund Investments are subject to market risks, read all the related documents carefully before investing.
Published on: Aug 11, 2025, 2:56 PM IST
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