The challenges of GST compliance and a reduction in trail commissions for older assets are prompting individual mutual fund (MF) distributors to shift towards online platforms and broaden their expertise in selling various financial products.
As of April, MF distributors are subject to an 18 percent GST on commissions received from mutual funds. This has compelled individual distributors to obtain GST registration numbers and submit proof of expenses, such as office rent, technology software, and travel, to reclaim GST deductions from mutual funds.
Additionally, the maximum Total Expense Ratio (TER) for equity schemes with Assets Under Management (AUM) of ₹500 crore has decreased from 2.25 percent to a Base Expense Ratio (BER) of 2.10 percent. The expense ratio diminishes progressively with an increase in AUM. Conversely, the lowest TER of 1.05 percent for equity schemes with assets exceeding ₹50,000 crore has been reduced to 0.95 percent under the new BER framework. Consequently, trail commissions paid to distributors on long-held assets have declined by 5 to 7 basis points due to the lower BER.
In compliance with AMFI regulations, mutual fund distributors (MFDs) with GST registration are required to submit invoices between the 7th and 15th of each month, after which the Registrar and Transfer Agents (RTAs) will release the GST amount by the end of that month. If an MFD issues an invoice post the 15th, the payment will be processed in the subsequent month, leading to a dip in income. Many MFDs are also encountering difficulties in submitting invoices for claiming input tax credit.
Arpit Shah, an independent MFD from Surat, reported that these recent changes are significantly affecting smaller distributors, noting a reduction of ₹20,000 in his monthly income of ₹1 lakh. “Embracing a technology platform is increasingly sensible, as it integrates software, operations, marketing, and client engagement in one location,” Shah stated. He added that to sustain his previous income level, he needs to serve a greater number of clients, making manual management increasingly challenging.
Anish Raut, a distributor from Bhubaneswar, expressed that a 15–20 percent decline in trail income raises concerns about the viability of an independent distribution model. He emphasized the need for broader financial solutions beyond mutual funds, stating that for smaller MFDs, becoming organized and technology-driven is now essential.
Aditya Agarwal, Co-founder of Wealthy.in, a wealth management platform, highlighted that numerous distributors are struggling with the operational complexities of GST compliance. Tasks that previously took a few hours are now extending to 2-3 days due to the added demands of documentation, reconciliation, invoicing, and filing requirements. He noted that large digitally signed invoice files can complicate uploading to GST portals, requiring additional troubleshooting time.
“We handle the GST compliance aspect with Asset Management Companies (AMCs), eliminating the need for distributors to coordinate with each fund house separately,” Agarwal added.
