Mutual Fund Agents Commission Revealed

 

Mutual Fund Agents Commission Revealed

Let us today understand the different commissions that the mutual fund agents get when you invest your money. However, keep in mind that in comparison to ULIPs and other insurance cum investment products, these commissions are very less and that’s why mutual funds are still the best financial products in India.

01) Commission from Customer -

Previously, it was 2.5% Entry load in the mutual funds. And your agent used to get commission from this amount. But now, this Entry load is totally abolished and that’s why now the entry load is 0% in mutual funds.

But well, your agent/advisor can still charge 1-5% of commission from you for giving you the best advise about selecting the mutual fund. But well, most of the mutual fund agents are just the sellers and they are not really the financial advisors and that’s why in India, right now not many agents receive this commission because not the all the customers are willing to pay this commission to their agents/advisors.

02) Upfront Commission -

This is 0.40% to 2.50% depending on the AMC. Previously, agents used to get this commission from 2.5% Entry load but now after removal of the Entry load, the Fund houses have to give this commission to the agents from their own pocket/profit.

Upfront commission is the commission paid by AMC (mutual funds company) to agent in the first year.

SEBI told all the fund houses that, all such kind of commissions should be given to the agents/distributors from the pocket/profit of the fund house and not from the money of an investor.

This is really a good thing. In case of ULIPs, this commission is paid from 20-50% premium allocation charge that is being charged from your first premium and this is the reason why agents will force you to pay your first premium higher.

03) Trail Commission -

This is really a commission by which the mutual fund agents generate a regular cashflow from your investments in the mutual funds. Trail commission is the commission paid to agents by AMC in subsequent years. The most important point you should know is that trail commission is percentage of total AUM (total worth of customer) . So if your total Worth of investments in a particular year is Rs 10 lacs and trail commission is 0.5% . AMC will pay 0.5% of 10 lacs = Rs 5,000 to the agent. This is the commission paid to your agent out of your money, Its adjusted from NAV.

And this is the real passive income stream for the mutual fund agents. The mutual fund agents build a huge customer base. Say for Example if the mutual fund agent has distributed some policy to 1000 customers, 1,00,000 per customer than the total asset under management with the fund house will be Rs.10 Crore and if trail commission is 0.5% than he will get Rs.5 lakhs Every year….!!!

This is the real passive income stream for the mutual fund agents and that’s why they advise you to invest for the long time horizon so that they can get huge returns.

Many brokers have a client list of thousands of people and literally hundreds of crores under management and that’s why they earn crores of returns every year risk free.

The trail commission is usually 0.20-1.00% per year with various fund houses.

What is the importance of knowing Trail Commission?

Well, say for Example, SBI gives trail commission of just 0.40% while Reliance gives trail commission up to 0.75% and that’s why by knowing the trail commission, you can know that how much the agent will earn in the subsequent years from your money.

And this is the reason why your agent will motivate you to buy Reliance mutual fund and not the SBI mutual fund because he is going to get higher trail commission for Reliance in subsequent years.

Thus, these are the various commissions related to the mutual funds.