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NISM Certifications · NISM-Series-V-A: Mutual Fund Distributors · Fund Distribution and Channel Management Practices

A distributor's client invests Rs 5,00,000 in a regular plan of an equity scheme. Which statement about the distributor's commission is correct as per SEBI's framework?

The commission is paid by the AMC and is embedded in the regular plan's total expense ratio. Entry load has been banned since 2009, so it cannot be deducted from the investor's amount. This is why regular plans cost more than direct plans.

  1. ACommission is paid by the AMC out of the scheme's expenses and is built into the regular plan's expense ratioCorrect
  2. BCommission is charged by the distributor as an entry load deducted from the investment amount
  3. CCommission is paid directly by SEBI to the distributor
  4. DCommission is borne only by the AMC's sponsor and never affects the scheme expenses

Explanation

Entry load was abolished in 2009, so distributors cannot charge it to investors. Distribution commission for regular plans is paid by the AMC from scheme expenses and is included in the regular plan's total expense ratio, which is why regular plans have higher expense ratios than direct plans.

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