Mutual Fund Investments Likely To Become More Affordable As Sebi Scraps Transaction Charge Payment To Distributors

The popularity of mutual funds as an asset has increased rapidly in recent years. According to a report by Motilal Oswal Fund the total Assets Under Management (AUM) of the entire industry have grown to Rs 74.4 lakh crore. Amid this rising popularity, investors are always on the lookout for making their mutual fund investment more lucrative. A recent change to the norms governing the payment of commissions by Asset Management Companies to AMCs is likely to make your mutual fund investment more affordable.

The capital market regulator, Securities Exchange Board of India, has removed the deduction of the charges paid by Asset Management Companies (AMCs) to mutual fund distributors. The market watchdog mentioned in a circular that the commissions were scrapped after feedback was received from stakeholders in the mutual fund industry.

“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 the Master Circular, shall be done away with,” Sebi said.

Prior to the scrapping of the provisions, the Paragraph 10.5 read with paragraph 10.4.1.b of SEBI Master Circular for Mutual Funds allowed mutual fund distributors to receive the commission from Asset Management Companies. As per the provisions, AMCs were allowed to pay transaction charges to the distributors if they managed to bring in subscriptions of a minimum of Rs 10,000.

“Paragraph 10.5 read with paragraph 10.4.1.b of SEBI Master Circular for Mutual Funds dated June 27, 2024 (Master Circular) allows AMCs to pay to the distributor transaction charges, subject to a minimum subscription amount of Rs 10,000 brought in by such distributors,” Sebi said.

The AMCs were allowed to deduct transaction charges of Rs 100 for existing investors in a mutual fund and Rs 150 for first-time investors in mutual funds per subscription of Rs 10,000 and above from the subscription amount of the investor. This amount in turn was deduced as transaction charges and was paid to the distributor.

The market regulator added that the paragraphs 10.4.1.b and 10.5 of the Master Circular on mutual funds now stand deleted. Sebi’s deletion of the paragraphs follow a consultation held by the market regulator with the public in May 2023 and an industry-wide consultation in June 2025.

Earlier in 2023, the market regulator said in a consultation paper that payment of upfront commission by investors directly and transaction costs deductible from investments of investors, should not be allowed as these should be included in the Total Expense Ratio (TER).

“In view of the overall proposal that all expenses should be included in the prescribed TER and considering that the distributors being agents of AMCs should be entitled to remuneration for services rendered only from AMCs, it is proposed that payment of upfront commission by investor directly and transaction costs deductible from investments of investors, may not be permitted,” Sebi said.

The scrapping of the transaction fees is likely to change how AMCs provide distributor incentives and spur a shift towards a relatively more transparent and performance-linked model. The decision is likely to lead to cost-savings for mutual fund investors investing through distributors amid the rising popularity of mutual funds in India.