Rising Industry Tide Fails to Lift Distributor Boats
India's mutual fund industry has witnessed spectacular growth over the past decade, with equity assets under management surging nearly tenfold between 2015 and 2025. However, this booming market has not translated into proportional benefits for the distributors who sell these investment products. While assets skyrocketed, the number of mutual fund distributors grew only 2.5 times during the same period, highlighting a significant disconnect between industry expansion and distributor prosperity.
Regulatory Changes Squeeze Distributor Incomes
The Securities and Exchange Board of India (Sebi) has been actively working to enhance efficiency in the mutual funds ecosystem, but these efforts have put considerable pressure on distributors. The regulatory body's 2018 decision to introduce total expense ratio (TER) slabs, remove upfront commissions, and implement trail commissions dealt a severe blow to distributor earnings. TER measures a fund's total expenses as a percentage of assets under management, and Sebi's current cap ranges from 1.05% to 2.25% depending on various factors.
The impact was immediate and dramatic. Major distributors like State Bank of India saw their mutual fund AUM growth rate drop from 61% compound annual growth rate between March 2015 and March 2018 to just 27% CAGR until March 2025 following the regulatory changes. ICICI Bank experienced an even steeper decline from 27% to 9% during the same periods.
Now, Sebi's October proposal to further reduce the overall expense ratio by 15 basis points threatens to exacerbate the situation. The regulator also plans to scrap an additional charge of 5 basis points that asset management companies (AMCs) earn over exit loads. According to Nomura Financial Advisory and Securities, this reduction could impact AMCs' FY27 profit before tax by 6-8%, with a portion likely being passed on to distributors.
Fintech Disruption and Training Gaps Compound Challenges
Beyond regulatory pressures, mutual fund distributors face mounting competition from fintech platforms that exclusively offer direct plans. The proportion of direct plans in total systematic investment plan (SIP) AUM has surged from 12% in March 2020 to 21% in March 2025, representing approximately ₹2.8 trillion of assets bypassing traditional distributors.
Platforms like Groww and Zerodha have captured significant market share, with Groww's National Stock Exchange active clients jumping from 5.37 million in March 2023 to 12.58 million in June 2025. The upcoming Jio Blackrock AMC is also planning to offer low-cost investment options that will bypass distributors entirely to reduce costs.
Another critical issue is the lack of incentive for fund houses to train and develop distributors compared to the insurance industry. India had approximately 2.89 million life insurance agents as of March 2024—about 16 times the number of mutual fund distributors. Debashish Mohanty, Chief Strategy Officer at The Wealth Company, explained that "insurance works on a tied model where agents are attached to a single company, creating strong incentives for insurers to expand their networks, while mutual funds operate on an untied model where Amfi-registered distributors can sell any fund house's products."
Manmeet Singh Khurana, founder of Wealth Dopes and a certified financial planner, noted that "the pricing changes implemented in 2018 added to the remuneration arbitrage that other investment products like ULIPs and corporate FDs had over mutual funds. More than banning upfront commissions, what possibly was more damaging was the lowering of TERs."
The financial impact on individual distributors has been substantial. Before 2018, a distributor with ₹20 crore AUM distributing equity schemes could earn approximately ₹10 lakh annually at 50 basis points commission. After TER reductions, the same distributor might earn only ₹4 lakh at 20 basis points, despite managing the same assets.
Industry Consolidation and Global Comparisons
The challenging environment has led to increased consolidation within the distributor community. Viraj Gandhi, CEO at Samco Mutual Fund, observed that "the second generation sometimes doesn't want to enter this business, so promoters prefer to sell or merge. Those who are short-staffed either combine, sell, or list themselves."
Misbah Baxamusa, CEO of NJ Wealth, highlighted that while the initial phase is challenging without upfront commissions, "as the business scales and assets start compounding, the earnings model becomes stronger and more stable for committed distributors."
Global comparisons reveal that India has among the highest expense ratios for mutual funds worldwide. While the US allows competition to determine expense ratios without caps, major players like Vanguard charge as low as 0.02% and Fidelity as low as 0.015% for some schemes. This contrast underscores the relative immaturity of India's mutual fund industry and suggests potential for further efficiency improvements that could continue to pressure distributor incomes in the coming years.
