Mutual fund distributors face stagnation in growth despite a booming industry. A 2018 reduction in expense ratios and rising competition from fintech platforms have already squeezed distributor earnings—a recent proposal to reduce the ratio by 15 basis points is the latest challenge for them.

As Sebi pushes for efficiency in mutual funds ecosystem, distributors are put through the wringer

Industry Concerns Over Mutual Fund Distributors

Despite a significant increase in asset growth among mutual funds over the past decade, the number of people selling these products has grown at a relatively slow pace.

Laggard Growth of Mutual Fund Distributors

Equity assets under management grew nearly 10 times between 2015 and 2025.
The number of mutual fund distributors grew only 2.5 times during the same period.

Pain Points Faced by Mutual Fund Distributors

The bypassing of distributors in favor of direct plans, which are often transacted on fintech apps and platforms.
The lack of incentives for fund houses to train distributors and develop long-term relationships with them.
The drop in incomes due to the regulatory cap on Total Expense Ratio (TER) at mutual funds.

Impact of Regulatory Changes on Mutual Fund Distributors

The cap on TER set by Sebi currently ranges from 1.05% to 2.25% depending on AUM size, type of fund, and brokerage and transaction costs among other factors.

The proposed draft from October to cut the overall expense ratio by 15 basis points (bps) may worsen the slower growth of distributors.

Regulatory Corrosion

A similar impact is anticipated from the proposed 15 bps reduction in TERs across slabs.

The impact of the 5 bps reduction in earnings for AMCs would impact the FY27 profit before tax for AMCs by 6-8%, according to a report by Nomura Financial Advisory and Securities (India) Pvt. Ltd.

This resultant fall in income for distributors is expected to further slow down growth in the industry.

Challenges Faced by Mutual Fund Distributors

Falling incomes due to the regulatory cap on TER.
Disproportionate growth in share of the market being captured by fintech apps and platforms.

Opportunities for Mutual Fund Distributors

The growth in assets at State Bank of India, the biggest distributor of mutual funds, despite a slowdown in growth.
The opportunities presented by fintech platforms, such as Groww and Zerodha, which offer direct plans.

Expert Insights

Manmeet Singh Khurana, distributor and founder at Wealth Dopes, said that the pricing changes implemented in 2018 added to the remuneration arbitrage that other investment products had over mutual funds.

Viraj Gandhi, CEO at Samco Mutual Fund, said that the second generation sometimes doesn't want to enter the business, leading to promoters selling or merging.

Debashish Mohanty, chief strategy officer at The Wealth Company, said that there are far more insurance agents than mutual fund distributors because insurance works on a tied model, where agents are attached to a single company.