How does my broker or agent make money when I invest in Regular plans?

How does my broker or agent make money when I invest in Regular plans?

Financial agents offer you advice on mutual funds for free. But there is no free lunch.  They get paid from the expense ratio charged to you. A regular plan expense ratio will contain the commission to be paid to the agents by the AMC and the payments occur quarterly. For e.g. Motilal Oswal Nifty 50 Index fund – Regular Plan has an annual expense ratio of 0.5%, meaning the fund uses 0.5% of the money invested by you to pay for expenses related to the funds, which include distributor fees.

Furthermore, this commission is paid every quarter on the current Assets Under Management (AUM) and not on initial investment. For e.g. if you had invested say Rs. 10 lac at the start of year 1, and at end of first year, you have Rs. 12 lac, your broker gets a commission of 0.5% * 12,00,000 = Rs. 6800. 

Now if your investment value at the end of next year  is say Rs. 15 lac, then the broker gets 0.5% * 15,00,000 = Rs. 7500.

He/she gets the commission despite you making any new investment in that fund. Even if you stop making new investments, or stop dealing with that broker, but leave the money invested in the funds invested through him/her, he/she still gets commission due to his/her AMFI Registration Number (AMR) code being attached to your investment.


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