SEBI Grants Extra Month for MF Distributor Incentives Rollout

In response to numerous complaints from the industry about problems faced regarding realignment to support processing and operating requirements for developing new systems and processes, SEBI has extended the implementation date of providing additional incentives for mutual fund distributors until March 1st, 2026, from its original date of February 1st, 2026.

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Targeting Grassroots and Gender Inclusion

This framework will allow distributors to receive incentives for bringing on board new individual investors (including those located in B-30 cities (beyond the top 30 urban areas)) and new women investors from anywhere in India. 
This initiative will provide for AMCs to provide 1% of the initial investments (first year SIPs) of these new investors or an initial lump sum of ₹2000 per new investor, provided the new investor maintains an active account with the AMC for at least 12 months. This incentive will complement the trail commission that is already in place and acts as a funding source for the 2 basis point investor education component of AMCs.

Operational and Eligibility Guardrails

Women investors who live in B-30 cities will not be able to qualify for the incentive in two categories (i.e., B-30 women give them one incentive). The exclusion from this incentive initiative includes ETFs, certain fund of funds schemes, as well as all short-duration products such as overnight, liquid, ultra-short-duration and low-duration funds. 
Distributors will earn incentives from all industry participants based on the unique PAN for each new investor, meaning there is no opportunity for distributors to receive incentives on multiple new investors based on the same PAN.

Industry Push Meets Regulatory Balance

The extension provides for the time necessary to allow distributors to upgrade their tracking systems for all eligibility criteria, PAN verification, and tracking of 1 year of diligence associated with retaining their investors. It is important to note that B-30 cities focusing on new investors aligns with recent AMFI data that shows that the gap between urban and rural SIP customers continues to narrow.

Penetration Impact

In India, 10 million MF Investors hold more than 30%, with only 18%, even though its 48% of the population is female. It is planned through incentives to add ₹50,000 crores of B-30 AUM in FY27, which will also increase the number of SIPs from approximately 4 million to about 5 million.
The 1% payout structure for distributors is similar to Insurance PODP models, which could increase the number of distributors by 25% in Tier 3 towns. In order to maintain a neutral TER between education and Other Categories, an average TER of 1.7% for all MF is established. If persistence monitoring lags in mis-selling, the feedback loop will create risk.