Dhirendra Kumar tells how mutual fund agents receive commission
29-Aug-2018 •Research Desk
I stopped my SIP in HDFC Top 200 around three years back. But the distributor section in the NSDL statement still shows some expenses during this period. Why is that so?
The mutual fund's expenses, which can be around 2.5 per cent per annum, are deducted on a daily basis before calculating the NAV. In direct plans, the expense ratio is around 1-1.5 per cent as it is reduced proportionately. When you invest in a mutual fund through a distributor, he gets commission in two ways.
They get upfront commission when they sell it to you for the first time, and then they get trail commission till the time you stay invested in that fund. Distributors get a trail commission depending on the contract between the fund company and the distributor. But it can be even 0.5 to1 per cent. So the expense reflecting in your NSDL statement is the trail commission which is going to the distributor. There is only one way to avoid this expense. Redeem your investment and re-invest the full amount in the direct plan.