The Securities and Exchange Board of India (SEBI) has abolished transaction charges for mutual fund (MF) distributors, effective immediately. This decision, announced on August 9, 2025, ends the previous arrangement where asset management companies (AMCs) could pay transaction charges to distributors for investments exceeding a certain threshold. The move aims to simplify the distributor compensation process and enhance transparency within the mutual fund ecosystem.

Background to the Decision

The decision follows a public consultation in May 2023 and an industry consultation in June 2025. Previously, according to SEBI's Master Circular for Mutual Funds dated June 27, 2024, AMCs could pay transaction charges to distributors if they brought in a minimum subscription amount of ₹10,000.

Based on feedback from these consultations, SEBI observed that distributors, acting as agents of AMCs, are entitled to remuneration from the AMCs themselves. Therefore, the separate transaction charges were deemed redundant, leading to the deletion of the relevant provisions in the master circular.

What the Change Means

• For Investors: SEBI's move to eliminate transaction charges could encourage more retail participation by removing charges that previously acted as a barrier for investors.
• For Distributors: The removal of the ₹10,000 minimum subscription requirement means that mutual fund distributors can earn transaction charges regardless of the subscription amount. AMCs can now determine how and when to pay transaction charges to distributors with more flexibility. The move seeks to streamline distributor compensation through commission structures.
• For AMCs: AMCs will need to revise their payout norms to align with the new regulations. The regulator said the change will streamline distributor remuneration while enhancing transparency in the mutual fund ecosystem.

Impact and Implications

This decision is expected to simplify the distributor compensation process while maintaining transparency in the mutual fund ecosystem. By removing redundant charges and ensuring direct remuneration, SEBI aims to foster a more transparent and efficient mutual fund market. The move is likely to have a significant impact on the mutual fund industry, benefiting both investors and distributors.