Last month, the Securities and Exchange Board of India (Sebi) set the cat among the pigeons when it announced enhanced disclosure of commissions that mutual fund distributors earn. Independent Financial Advisors (IFAs) across India have held strong protests against this move by Sebi. The general perception is that distributors do not want this disclosure. Nothing can be farther than the truth.
For sake of transparency, here are the commissions that IFAs earn. Commissions range from 0.02 per cent-0.05 per cent for liquid funds; 0.30 per cent-0.50 per cent for debt funds; and 0.70 per cent-1 per cent for equity funds. On an average, a distributor earns 0.70 per cent on client portfolios as there is a mix of liquid, debt and equity funds. On this 0.70 per cent, there is a service tax deduction plus applicable income tax and expenses that a distributor bears which total to around 0.45 per cent. Net of this, a distributor typically earns 0.25 per cent on total assets.