Finance1 min read

Why mutual fund distributors are giving up multiple licences

By · Published by Everything Blog

In short

The regulatory mandate implemented by the Securities and Exchange Board of India bifurcated core operating expenses from mandatory statutory levies. Asset management firms now disburse baseline commissions separately, releasing the Goods and Services Tax portion strictly against valid tax invoices submitted by registered entities. Because unregistered agents now capture the exact same net base payout as their registered peers, distributors are abandoning secondary permits. This widespread consolidation is poised to markedly shrink the total tally of active mutual fund licences within the next six to eight months.

Key points

  • The updated payment structure equalizes net commissions between GST-registered distributo…: The updated payment structure equalizes net commissions between GST-registered distributors and those operating without tax registration.
  • Redundant distributor registrations are expected to decline significantly over the next s…: Redundant distributor registrations are expected to decline significantly over the next six to eight months as holdings merge.
  • Abandoning multiple licences eliminates administrative burdens, allowing intermediaries t…: Abandoning multiple licences eliminates administrative burdens, allowing intermediaries to streamline operations and concentrate on client growth.

Sources checked by our analysis pipeline: 1

Asset management companies (AMCs) have begun receiving requests from mutual fund distributors to consolidate their assets under a single registration, following a regulatory change that has removed the incentive to operate through multiple registrations, three AMC executives told Mint.

Each mutual fund distributor is assigned a unique AMFI Registration Number (ARN) to sell mutual funds. Some distributors, however, have obtained multiple ARNs in the names of family members, including spouses, parents and siblings, to keep their individual turnovers below the goods and services tax (GST) registration threshold and avoid paying GST on commissions.

Mutual fund distributors generally need to register under GST if their aggregate annual turnover exceeds ₹20 lakh, subject to certain exemptions. Registered distributors must pay GST on their taxable commissions. Distributors earn commissions from AMCs for mobilizing investments and servicing investors. These payouts are funded from the expenses charged to mutual fund schemes, which are borne by investors.

Effective 1 April, the Securities and Exchange Board of India (Sebi) introduced a revised mutual fund expense framework that separates the base expense ratio (BER) from statutory levies and…

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