Description

SEBI revises distributor incentive framework for mutual funds, introducing additional commission structure for onboarding new individual investors from B-30 cities and women investors, replacing the previous Regulation 52(6A)(b) framework.

Summary

SEBI has revised the incentive structure for mutual fund distributors through amendments to Regulation 52 of SEBI (Mutual Funds) Regulations 1996. The previous framework under Regulation 52(6A)(b) has been deleted due to concerns of misuse. A new commission structure has been introduced under Regulation 52(4A) to encourage distributors to onboard new individual investors from B-30 cities and new women investors from all cities. The additional commission will be funded from the 2 basis points on daily net assets mandated for investor education and financial inclusion initiatives.

Key Points

  • Regulation 52(6A)(b) of SEBI (Mutual Funds) Regulations 1996 deleted via gazette notification dated October 31, 2025
  • New incentive framework introduced under Regulation 52(4A) for distributors
  • Eligible investors: New individual investors (new PAN) from B-30 cities and new women individual investors (new PAN) from both Top 30 and B-30 cities
  • Commission structure: 1% of amount subject to maximum ₹2,000 per investor
  • For lump sum: 1% of first application amount (max ₹2,000) if investor remains invested for minimum 1 year
  • For SIP: 1% of total investment made during first year (max ₹2,000)
  • Additional commission to be paid from 2 basis points on daily net assets earmarked for investor education
  • Dual incentives for same investor/investment not permitted
  • Commission is in addition to existing trail commission from scheme

Regulatory Changes

Deleted Provision:

  • Regulation 52(6A)(b) of SEBI (Mutual Funds) Regulations 1996 removed via gazette notification dated October 31, 2025 due to concerns of misuse

New Framework:

  • Additional commission structure introduced under Regulation 52(4A) of SEBI (Mutual Funds) Regulations 1996
  • Mandatory for all mutual fund schemes except: ETFs, domestic Fund of Funds with >80% AUM in domestic funds, and schemes with duration requirement <1 year (Overnight, Liquid, Ultra Short Duration, and Low Duration Funds)
  • Changes to offer documents pursuant to revised incentive structure will not be considered as Fundamental Attribute Change

Compliance Requirements

For AMCs:

  • Must pay additional commission to distributors for onboarding eligible new investors
  • Fund commission from 2 basis points on daily net assets set apart for investor education, awareness and financial inclusion
  • Implement adequate claw back provisions
  • Apply framework to all schemes except specified exclusions
  • Update offer documents as needed

For AMFI:

  • Issue necessary implementation standards within 30 calendar days from the date of this circular (by December 27, 2025)
  • Implementation standards to be issued in consultation with SEBI

For Distributors:

  • Eligible to receive additional commission only for specified new investor categories
  • Cannot claim dual incentives for same investor/investment
  • Must ensure investor remains invested for minimum 1 year (for lump sum) to retain commission

Applicable to:

  • All Mutual Funds
  • All Asset Management Companies (AMCs)
  • All Trustee Companies of Mutual Funds
  • Registrar to an Issue and Share Transfer Agents (RTAs)
  • Association of Mutual Funds in India (AMFI)

Important Dates

  • October 31, 2025: Gazette notification deleting Regulation 52(6A)(b)
  • November 27, 2025: Date of this circular
  • By December 27, 2025: AMFI to issue implementation standards (within 30 calendar days from circular date)
  • Minimum 1 year: Required investment period for lump sum investors for distributor to retain commission
  • First year: Period during which SIP investments are counted for commission calculation

Impact Assessment

Market Impact:

  • Expected to expand mutual fund penetration in B-30 cities and among women investors
  • Standardized commission structure may reduce misuse compared to previous framework
  • Could increase competition among distributors to onboard new investors from target segments

Operational Impact:

  • AMCs need to modify commission tracking and payment systems to identify eligible new investors
  • Implementation of claw back mechanisms required for cases where investors exit before 1 year
  • RTAs and AMCs need to track PAN-level data at industry level to identify truly new investors
  • Changes to offer documents required but streamlined as not considered Fundamental Attribute Change

Financial Impact:

  • Additional commission capped at ₹2,000 per eligible new investor
  • Funded from existing investor education corpus (2 basis points on daily net assets), not from scheme expense ratios
  • No impact on existing trail commission structure
  • Exclusion of ETFs, certain FoFs, and short-duration schemes limits scope

Inclusion Impact:

  • Incentivizes distributor focus on underserved segments (B-30 cities, women investors)
  • Aligns distributor incentives with financial inclusion objectives
  • May accelerate awareness and participation in mutual funds among target demographics

Impact Justification

Major revision to mutual fund distributor incentive structure affecting all AMCs, mutual funds, and distributors. Introduces new commission framework for expanding investor base in underserved segments, funded from investor education corpus.