BENGALURU: The recent announcement from Sebi comes as a treat for investors and capitalists out there, which dictates that you will be able to know the exact valuation of money your distributor makes, every time you invest on mutual funds. The dictate titled 'Commission Disclosure Rule' will be operational from October 1st. Mutual Fund companies now have to disclose their half-yearly consolidated account statement, the commission they have paid to investors during this period, including payouts in the form of gifts and sponsored trips.

The current practice doesn’t provide much transparency as the payout to the distributor is concealed, implicating lack of clarity in assessing the exact amount. The sum could turn out to be a significant one, depending on the money put into the scheme so far. An investment of Rs 5,000 made every month in an equity scheme through a Systematic Investment Plan (SIP) for ten years will reap a return of Rs 11.62 lakh at 12 percent CAGR. This also indicates that the total commission payout would amount roughly around Rs 28,207 to the distributor over the ten years, considering a trail commission of 0.5 percent and an upfront commission of 0.75 percent. The amount works out to 5 percent of total investing gains.

The regulator has asked fund houses to provide an illustration of impact of expense ratio on the scheme’s returns to help determine how much an investor would gain by cutting down on expense ratio. On a bigger picture, it looks like the measures are leading to a system which employs lower expense ratio as the expense towards distributor’s commission is done with. "The regulator is telling investors to go with direct plans instead of buying through the distributor," said Manoj Nagpal, CEO, Outlook Asia Capital.

There are chances of investors shifting to a more direct plan, which doesn’t involve the assistance of a distributor at all, rather takes a more do-it-yourself approach. Another way could be seeking services from a Sebi-registered investment advisor who will offer direct plans while handholding them through the process for an upfront fee. A trail commission of 0.3-0.75 percent is usually earned by the distributors on the value of the investment each year. This figure is calculated on a daily basis as a percentage of the assets under management of the distributor and is paid monthly. This excludes any upfront commission paid by the fund company to the distributor out of its own pocket. 

Original News Headline: New rule will help investors to know about commission earned by mutual funds distributor

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