Equity mutual fund asset boom drives surge in distributor commission

Around 2,500 MF distributors rake in Rs 14,850 cr in commissions last fiscal year

(This report has been updated)
Even as commission-free ‘direct’ plans gain momentum in mutual fund (MF) investments, the distribution business continues its growth trajectory.

In 2023-24 (FY24), nearly 2,500 major MF distributors (MFDs) earned over Rs 14,850 crore in commissions, with most large distributors registering a sharp surge in income.

In the previous year (2022-23), the Association of Mutual Funds in India (Amfi) reported that the total commission income for the leading 1,781 distributors was Rs 12,071 crore. In 2021-22, 1,544 distributors earned Rs 10,420 crore.

According to top MFDs, the income surge is ascribed to growing investor interest in equity MF schemes.

“A strong economic backdrop has encouraged more investors to enter the market, with many opting to do so through MFDs,” said Feroze Azeez, deputy chief executive officer of Anand Rathi Wealth.

“The rise in commissions reflects a shift in Indian household investment preferences, with a gradual move from debt to equity. By March 2024, equity allocations increased from 11 per cent to 15 per cent, while debt or deposit allocations adjusted slightly from 34.9 per cent to 33.5 per cent,” he added.

Distributor commissions are based on the assets under management (AUM) of their clients in the scheme. Thus, the increase in payouts is influenced by both the movement in asset prices and the inflows brought in by distributors.

During FY24, the equity market saw a sharp rally, with the benchmark National Stock Exchange Nifty 50 surging nearly 29 per cent.

Amfi releases the distribution income of only select distributors, based on thresholds related to AUM, number of branches, and commissions earned.

At the end of March 2024, the industry had over 267,000 distributors, including individual distributors, banks, distribution firms, and their employees. The individual distributor segment showed sharp growth over the past year, with their count rising to 156,698 in March 2024 from 135,104 a year ago.

As of July, MFDs held a 78 per cent share of the total AUM of individual investors. Their AUM stood at Rs 31.6 trillion, compared to Rs 9 trillion AUM for direct plan investment channels. Overall, the share of regular plans in the total AUM is lower at 58 per cent, as most institutions invest in MFs directly.

The commissions that MFs pay to distributors represent the difference between the expense ratios of direct and regular plans. Payouts are much higher in equity schemes compared to passive and debt funds.

NJ IndiaInvest, with over 40,000 distributors nationwide working on a revenue-sharing basis, remains the top performer. The company earned Rs 1,882 crore in FY24, compared to Rs 1,539 crore the previous year, with an average AUM of Rs 1.6 trillion.

State Bank of India, the largest distributor in terms of AUM, earned Rs 1,039 crore. HDFC Bank, Prudent Corporate Advisory Services, and Axis Bank are also among the top five.