Online distributors of Mutual Funds in India are advertising their investments service as free to the investor with a clear implication that the remuneration or commission they receive from Mutual Fund companies does not come out of the investors pocket. This is blatantly wrong and is clearly false advertising. Commissions have a direct impact on the financial interest of Mutual Fund investors as it reduces the return the investor gets. Further as zero-commission “Direct Plans” are available for all Mutual Fund schemes, it makes the “free” moniker laughable for the commission laden regular plans.

Did you know? AMFI reported that Mutual Fund companies collectively paid Rs 4,754 Crores in commission in FY15 to distributors. This translates to an average of 92 bps in commission received by distributors of Mutual Funds (online and offline) and this money comes directly out of the investors pocket.

Just as SEBI has made it mandatory for Mutual Funds Asset Management Companies (AMCs) to disclose the actual commission paid to distributors they should also make it mandatory for distributors to fully disclose the amount of commission they receive from Mutual Fund companies and that the investors bear the cost of the commission as lower returns. At the least, SEBI should enforce fair advertising laws in our industry which is already plagued by conflict of interest and trust issues. Advertising a service as free, where the distributor clearly receives an indirect commission is blatantly false and should be disallowed.