All About Trail Commission

Some where in January 2008, SEBI declared that those individuals who shall be submitting their forms for mutual fund investments directly at the AMC office shall be treated as direct investment and they will be exempted from the entry load charged by the AMC's of the respective fund houses. But recently one news paper carried a report that the Association of Mutual funds has allowed the fund houses to levy a Trailing Commission on direct investments. Is it true? If yes then what is meant by trailing commission and how much is it charged?
Sanjeev Talwar

Trail commission is a fee paid to a distributor by fund on the investment value which remains with the fund. The trailing commission varies between 0.25 per cent to 0.75 per cent p.a. for an equity fund. On debt fund, fund advisors get their commission only in the form of trail commission. Trail commission is usually paid every quarter.

Trail commission is paid to the advisor or agent at the time of the first investment. But it is also possible for a direct investor to introduce an advisor for their investment who will be eligible for the trail commission, after making his investment on a no-load basis.

This article was originally published on December 23, 2008.