In FY25, mutual fund distributors earned Rs 27,335 crore in commissions, with just 1.5% of entities—mostly banks—securing 77% of the total. New SEBI regulations from April 2026 are now putting pressure on these distributor margins, potentially changing the cost structure for investors in regular plans.
The business of distributing mutual funds in India remains heavily concentrated. During the fiscal year 2025, investors paid a combined Rs 27,335 crore in distribution commissions. A significant portion of this massive sum, roughly 77.2%, was collected by a small group of just 3,158 distributors, representing only 1.5% of the total registered entities in the country. This concentration highlights the dominant role played by large banks and bank-backed brokerage channels.
The Bank Advantage
Banks currently hold a major advantage in this business. With their extensive branch networks and millions of existing banking customers, they are uniquely positioned to gather assets at a scale that independent distributors cannot match. For instance, the top 50 distributors alone received Rs 6,330 crore in commissions during FY25. On average, a bank or bank-linked channel earned about 70 times more in commissions than a typical individual distributor. This sheer scale allows them to dominate the market share of investor assets.
Regulatory Pressure on Margins
The environment for these distributors is changing. Following new regulations from the Securities and Exchange Board of India (SEBI) effective April 1, 2026, the industry is seeing a shift in how fees are structured. These regulations introduced a revised Total Expense Ratio (TER) framework, which limits the total costs a fund house can charge. As a result, distributor commissions across many equity schemes have seen a reduction of 3 to 5 basis points in the first quarter of fiscal year 2027.
This reduction in commission rates is putting pressure on the profit margins of distributors. For larger banks, this may be manageable due to their volume. However, smaller players might face difficulties, potentially leading to a consolidation within the distribution sector where smaller firms may exit or merge with larger ones to survive the stricter cost environment.
What This Means for Investors
These commission costs are not paid by the investor directly but are embedded within the expense ratios of regular mutual fund plans. Over long periods, these extra costs can reduce the final returns an investor receives compared to direct plans, which do not pay any distributor commission.
Since 2018, the industry has shifted to a model where all commissions are trail-based, meaning distributors earn a small percentage of the asset value every year rather than an upfront payment. As SEBI continues to focus on transparency and cost reduction, investors should regularly check the expense ratio of their schemes. Comparing the cost of a regular plan against the direct version of the same fund can reveal the true impact of distribution fees on their long-term wealth.
Going forward, the key factor for investors to track will be how distributors adjust their service offerings as commission margins tighten under the new regulatory framework. While banks may continue to lead in asset gathering, the pressure on margins might encourage more transparent service models or further growth in lower-cost direct investing platforms.