Sebi Unveils New Incentive Structure for Mutual Fund Distributors to Attract New Investors

The Securities and Exchange Board of India (Sebi) has unveiled a fresh incentive plan for mutual fund distributors. This initiative aims to reward distributors who attract new individual investors from B-30 cities and new women investors from any city. The updated structure is set to be implemented on February 1, 2026, according to Sebi's circular.

Under this scheme, asset management companies (AMCs) will provide distributors with an additional 1% commission on the initial lump-sum investment or the first-year Systematic Investment Plan (SIP) amount, capped at Rs 2,000. This is contingent upon the investor remaining invested for at least one year. The commission will be sourced from the 2 basis points that AMCs have already allocated for investor education and will be in addition to existing trail commissions.

Incentive Structure Details

The incentive structure excludes certain investment types. Exchange-Traded Funds (ETFs), specific Fund of Funds, and short-duration schemes such as overnight, liquid, ultra-short, and low-duration funds are not eligible for the additional commission. Furthermore, dual incentives for the same woman investor from B-30 cities are prohibited.

Distributors can earn extra commissions by bringing in new individual investors with a new Permanent Account Number (PAN) from B-30 cities at the mutual fund industry level. Additionally, they can earn by attracting new women investors with a new PAN from both Top 30 and B-30 cities.

Guidelines and Implementation

The Association of Mutual Funds in India (AMFI) will issue implementation guidelines within 30 days. Any changes in scheme documents due to this new structure will not be considered fundamental changes. Previously, Sebi had established a framework to incentivise distributors for attracting investments from beyond the top 30 cities (B-30 cities).

However, concerns about potential misuse of this framework prompted Sebi to revise the incentive structure. Feedback from the industry highlighted these concerns, leading to adjustments aimed at promoting genuine new investments in mutual funds.

This revised approach seeks to broaden outreach and increase awareness among potential investors while ensuring fair practices within the mutual fund distribution network.

With inputs from PTI