As Sebi pushes for efficiency in mutual funds ecosystem, distributors are put through the wringer

Despite record asset growth among such funds in the past 10-odd years, the number of people selling these products has grown at a laggard pace. Equity assets under management grew nearly 10 times between 2015 and 2025, the number of mutual fund distributors just 2.5x.

In the decade gone by not only have the numbers of such distributors lagged growth in the industry, their underlying business models also have been under severe stress—squeezing incomes, increasing consolidation, and back-loading revenue streams.

Mint spoke to industry executives, distributors and other sector experts to piece together what ails distributors. The top pain points in the distributor fraternity listed were:

• the bypassing of distributors in a trend of sharply increased adoption of direct plans mostly transacted on fintech apps and platforms,
• the lack of incentives for the fund houses to train distributors and develop long-term relationships with them like in the insurance industry, and
• the drop in incomes after Sebi's repeated intent to crimp the total expense ratio (TER) at mutual funds. This ratio measures a fund's total expenses – management fees, marketing, distribution, administrative, and other costs – as a percentage of the total assets under management.

The cap on TER set by Sebi currently ranges from 1.05% to 2.25% depending on AUM size, type of fund, and brokerage and transaction costs among other factors.

The slower growth of distributors in the last decade – there were about 178,000 of them end of fiscal 2025 vs. 66,919 in FY2015—may worsen if the regulator’s proposed draft from October to cut the overall expense ratio by 15 basis points (bps, one-hundredth of a per cent) comes into effect. The recommendations are aimed at increasing transparency in charges levied on investors.

Industry insiders point to the sharp effect of a similar regulatory change in 2018: the introduction of TER slabs, removal of upfront commissions, and introduction of trail commissions came as a body blow to distributors. Even for the big players.

The growth in the assets at State Bank of India, for example, the biggest distributor of such funds, grew at a compound annual growth rate of 61% from March 2015 to March 2018. After the 2018 rule change, its mutual fund AUM has expanded at 27% CAGR until March 2025.

For ICICI Bank, the comparable numbers were 27% and 9%. The trend is similar for others among India's top five distributors.

Regulatory corrosion

A similar impact is anticipated from the proposed 15 bps reduction in TERs across slabs. On top of that, it proposed to scrap an additional charge of 5 bps AMCs earned over the exit load, the fee charged by asset managers if an investor prematurely exits the scheme. AMCs currently earn the 5 bps regardless of whether the investor leaves the fund or not.

The impact of the 5 bps reduction in earnings for AMCs would impact the FY27 profit before tax for AMCs by 6-8%, Nomura Financial Advisory and Securities (India) Pvt. Ltd said in a report on 30 October. A portion of this impact will be passed on to distributors to partly cushion the overall impact AMC earnings.

The resultant fall in income for distributors is expected to further slow down growth in the industry.

Manmeet Singh Khurana, distributor, founder at Wealth Dopes, and a certified financial planner said that the pricing changes implemented in 2018 added to the remuneration arbitrage that other investment products like ULIPs, endowment, corporate FDs, and alternate investment products had over mutual funds.

“Despite trail income being a better option in the longer term, the immediate impact over the next two years may not be substantial. More than banning upfront, what possibly was more damaging to the product was the lowering of TERs. As a country our financial footprint is still at the foothills given our potential. This move was much ahead of its time," Khuranna added.

As of today, there are eight schemes which have the lowest TER due to their sheer size, as per data from Value Research. An AUM of above ₹50,000 crore has the lowest TER of 1.05%.

Before 2018, the maximum TER an equity scheme could charge was 1.75% when the assets were over ₹300 crore. A distributor with an AUM of ₹20 crore distributing only one equity scheme of a mutual fund with an AUM of over ₹50,000 crore would get commissions of around 50 bps. So, on ₹20 crore, he earned ₹10 lakh a year.

After 2018, when the TER slabs were introduced, the same ₹50,000 crore equity scheme was mandated to reduce the TER to 1.05%. With the reduced TER, distributor commissions also shrunk. The same distributor in our example would get only 20 bps from the AMC. On the same ₹20 crore AUM, his earnings fell to ₹4 lakh.

To be sure, distributor commissions vary from AMC to AMC and there is no cap on that.

Misbah Baxamusa, chief executive officer (CEO) at NJ Wealth, a mutual fund distributor, stated that in the initial stages, it takes a sizable scale for a distributor to earn commissions and with no upfront commissions, the early phase can be challenging. However, as the business scales and assets start compounding, the earnings model becomes stronger, more stable, and rewarding for committed distributors.

Fintech, training squeeze

But, for those who can't cover costs with thinner income streams, the options are stark: shut shop or merge or sell off. “The second generation sometimes doesn’t want to enter this business. So, promoters prefer to sell or merge. Those who are short-staffed either combine, sell, or list themselves," said Viraj Gandhi, chief executive officer at Samco Mutual Fund.

If falling incomes was one big battle, the other one sapping distributor health and enthusiasm is the disproportionate growth in share of the market being captured by fintech apps and platforms.

This increasing adoption of direct plans—investors buying without distributors—is telling. The proportion of direct plans in total SIP AUM has increased over the last five years from 12% as of March 2020 to 21% as of March 2025, as per data from industry association Association of Mutual Funds in India or Amfi. That totes up ₹2.8 trillion and highlights the amount of capital bypassing distributors—even a 20 bps commission on that would work out to ₹560 crore.

In fact, platforms such as Groww and Zerodha offer only direct plans. Groww's National Stock Exchange active clients increased from 5.37 million in March 2023 to 12.58 million in June 2025, according to the company's website. Active clients also include the ones doing trading in stocks and derivatives.

Jio Blackrock AMC is planning to offer low-cost investment options for clients will bypass distributors to reduce costs.

Another reason for the lower number of distributors is also because there is no incentive for the fund house to train its distributors unlike in the insurance business. India had 2.89 million life insurance agents as of March 2024, the latest period for which data is available—about 16 times the number of mutual fund distributors.

“There are far more insurance agents than mutual fund distributors because insurance works on a tied model, where agents are attached to a single company, and each insurer actively builds and trains its own vast sales force. This creates strong incentives for insurers to keep expanding their networks," said Debashish Mohanty, chief strategy officer at The Wealth Company, an asset management firm that is now actively training distributors to come into the ecosystem.

“Mutual funds, on the other hand, operate on an untied model where Amfi registers these distributors who can sell products of any fund house, so individual AMCs don’t feel the need to grow distributor numbers by investing time and money of their own," Mohanty added.

The truth remains—and this shows how the troubles before mutual fund distributors are far from over in the quarters and years ahead—India is among economies with the highest expense ratios for mutual funds. The US does not have a cap for the highest expense ratio it can charge to investors; it leaves competition to discover that.

Still, the numbers showcase the efficiency of the funds business there. The lowest expense ratio a scheme from Vanguard charged was 0.02% and the highest was 1.4%. In the case of Fidelity, the lowest TER it charged for its scheme is 0.015% and the highest was 1.26%.

Expense ratios globally are lower in matured markets whereas India's mutual fund industry is still early on the curve.