7.6 Commission Disclosure Mandated by SEBI

Why Disclosure Rather Than Prohibition

SEBI's approach to the conflict inherent in commission-based distribution is transparency rather than a ban. The investor is told what the distributor earns, in rupees, and can then judge the recommendation for themselves. That choice shapes the whole disclosure architecture, which operates at three levels: to the individual investor, on AMC websites, and at industry level.

Disclosure to the Investor: the Consolidated Account Statement

The central requirement concerns the Consolidated Account Statement (CAS).

A CAS is issued monthly to investors who transacted during the month, and a half-yearly CAS is issued covering all folios across all mutual funds linked to the investor's PAN. The half-yearly CAS must disclose:

• The actual commission paid to the distributor, in absolute rupee terms, for the investor's holdings during the period
• Commission covering all forms of payment, including any additional payments made by the AMC
• The scheme's total expense ratio for both the regular plan and the direct plan

Two features make this disclosure effective in a way that percentage disclosure never was.

It is in rupees, not percentages. "Trail of 0.9% per annum" means little to most investors. "INR 18,400 paid to your distributor in the last six months" is immediately intelligible.

It shows both expense ratios. Placing the regular and direct plan expense ratios next to each other lets the investor see the cost of distribution directly, without needing to look anything up.

Disclosure at AMC Level

AMCs must disclose on their websites the commission paid to distributors, on a distributor-wise basis, in the prescribed manner. This makes visible which distributors are receiving the largest payments from a fund house, and is the data that supports supervisory scrutiny of large distribution relationships.

Disclosure at Industry Level

AMFI publishes aggregated data on commission paid to distributors across the industry, including the assets and commission attributable to large distributors. This is the dataset AMCs use to identify which distributors cross the thresholds triggering formal due diligence.

The Distributor's Own Obligation

SEBI's rules govern what the AMC must disclose. The AMFI Code of Conduct imposes a separate and distinct obligation on the distributor:

Where a distributor recommends a scheme from among competing schemes, the commission receivable from each of those competing schemes must be disclosed to the investor.

This is the more demanding requirement, and the one distributors most often overlook. The CAS tells the investor, after the event, what was earned on the scheme they bought. The Code requires the distributor to tell the investor, before the decision, what would have been earned on each alternative. Only the second lets the investor test whether the recommendation tracked the commission.

The Code also requires disclosure that a direct plan exists at a lower expense ratio.

What the Framework Adds Up To

How to Handle the Conversation

Distributors frequently fear the commission conversation. In practice, an investor who learns the figure from a statement six months later without having been told is far more likely to complain than one told at the outset.

The workable framing states the number and what it buys:

"On this scheme I receive roughly 0.85% a year of your holding as trail — about INR 8,500 a year on INR 10 lakh. The two alternatives I considered pay 0.60% and 1.05%. The direct plan carries no commission and costs about 0.75% less each year, but you would handle transactions and reviews yourself. Here is what I do for that fee."

That disclosure satisfies the Code, pre-empts the CAS surprise, and turns remuneration into a statement about the service rather than something the investor discovers.

Understanding the Consolidated Account Statement Itself

Because the commission disclosure travels inside the CAS, a distributor should be able to explain the document.

• A CAS consolidates holdings across all mutual funds against the investor's PAN, not just the schemes of one AMC.
• Where an investor holds units in dematerialised form, the CAS is issued by the depository and covers securities alongside mutual fund units.
• A monthly CAS is issued to investors who transacted during that month.
• A half-yearly CAS is issued covering all folios, and it carries the commission and expense-ratio disclosures.
• Investors who have not provided a PAN receive account statements at folio level from each AMC rather than a consolidated statement.

Why the Rupee Figure Sometimes Surprises

Investors are often startled by the half-yearly number, and it helps to understand why. Trail accrues on daily assets, so a growing portfolio produces a growing figure with no new transaction at all. An investor whose holding rose from INR 20 lakh to INR 26 lakh over a strong half-year sees commission rise correspondingly, and may read that as a charge for activity that did not occur.

The accurate explanation is that trail is payment for ongoing service on the assets held, not for transactions executed. That framing is honest and it is also the standard the distributor is held to: if no ongoing service is in fact provided, the investor's discomfort is well founded and the remedy is to provide the service rather than to explain the number away.