I want to know whether trail commission paid to an agent or distributor is calculated based on entry date NAV or year closing date NAV or exit date, whichever is earlier. Because in case it is calculated on year closing date NAV or exit date, then that means the trail commission is paid on the earning or increase over a period of time.
-Kamal Kant
Trail Commissions are calculated on a daily basis as a percentage of the assets under management of the distributor and payable monthly. Since these are calculated on net assets, distributors benefit from rise in his assets in the form of higher NAV of funds or sale of more units. Also, these are paid out of the expense ratio which is deducted on a daily basis.
An investor doesn't need to worry about trail commission because these are factored in the expense ratio which is explicitly stated by all funds. These are not any hidden cost affecting your NAV.
Trail commissions from equity funds ranges between 0.20 and 1 per cent, and in debt funds it varies between 0.10 and 1 per cent.
A mutual fund distributor is paid commission as long as investor's money is held in the fund.
This article was originally published on May 07, 2014.
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