Fund Distribution and Channels

How mutual funds reach investors, and how distributors are regulated and compensated.

How Investors Access Mutual Funds

Investors can access mutual funds directly through an AMC's own website/app, or indirectly through distributors, banks, national distributors, online platforms, and stockbroker terminals.

Direct Plans vs Regular Plans

Every scheme is offered in two plan variants: Direct Plan (bought straight from the AMC, no distributor commission, lower TER) and Regular Plan (bought through a distributor, commission embedded in the TER).

All else equal, a Direct Plan investor keeps a slightly higher return every year, because they are not paying for distribution.

Becoming a Distributor: ARN and NISM Certification

To legally sell mutual funds and earn commission, an individual must clear the NISM-Series-V-A certification exam and register for an ARN (AMFI Registration Number) - this certification is what qualifies someone as a distributor rather than just an informal adviser.

Distributor Compensation: From Entry Load to Trail-Only

Entry load - a charge deducted from an investor's initial investment to pay distributor commission - was abolished by SEBI from August 1, 2009.

Since then, only trail commission is permitted: a small ongoing percentage paid to the distributor for as long as the client's assets sourced by that distributor remain invested in the scheme.

Distributor vs Investment Adviser

A mutual fund distributor and an Investment Adviser (registered separately with SEBI as an RIA) are legally distinct roles.

A distributor sells products and earns commission from the AMC; an RIA charges the client a direct advisory fee and owes a fiduciary duty to act in the client's best interest, without earning product commission.

Due Diligence and Recent Regulatory Changes

AMCs are required to run due diligence on distributors above certain business volume thresholds - reviewing their conduct, complaint history, and compliance record periodically.

A flat per-transaction charge framework for distributors (commonly cited historically as Rs 100/Rs 150 per transaction) was withdrawn by SEBI in August 2025 and should not be treated as a current rule.

Numbers to remember

Entry load abolished: August 1, 2009
Only trail commission permitted (no upfront)
Transaction-charge framework withdrawn: August 2025

Memory hook

Direct plan = lower cost, no commission. Regular plan = distribution cost built into TER.

Independent study aid by Ramaniya, based on the syllabus of the National Institute of Securities Markets (NISM) - not an official NISM publication.