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 transaction costs. These statutory levies were earlier included in the total expense ratio (TER). Under the corresponding change in commission payouts, AMCs pay distributors a base commission excluding GST, while the GST component is paid when the distributor submits a valid tax invoice to the AMC. Unregistered distributors receive only the base commission, removing the financial incentive to split commissions across multiple registrations to avoid GST.
“The change is positive for the mutual fund industry, as it encourages distributors to simplify their business structures and focus on growing their operations, understanding their needs and recommending suitable products, rather than spending time managing multiple registrations and fulfilling its compliance," said Pallav Bagaria, managing director at Equirus Wealth.