Full trail model
SEBI's rule that AMCs pay distributors only trail commission in all schemes — no upfront commission and no upfronting of trail, in cash or kind, through sponsorships or any other route.
In plain language
A distributor could be paid in two broad ways: a large amount up front when the client invests, or a smaller amount every day for as long as the money stays. The first rewards the sale; the second rewards keeping the client well served.
SEBI has chosen the second. Under the SEBI MF Master Circular issued on 20 March 2026, AMCs shall adopt full trail model of commission in all schemes, without payment of any upfront commission or upfronting of any trail commission, directly or indirectly, in cash or kind, through sponsorships, or any other route.
The workbook's summary: MFDs are paid only trail commission, and such trail commission can be paid only in monetary terms.
How it works
What the model rules out. Any incentive to the distributor not in the form of trail commission — an upfront cheque, an advance of future trail, a sponsored trip, a gift.
What is paid. Trail commission on the net assets attributable to the units the distributor sold, calculated on daily balances (AUM × annual rate ÷ 365) and paid monthly or quarterly. No commission is paid on self-business — the distributor's own investments.
The regulatory hook. Regulation 66(6) of the SEBI MF Regulations 2026: the AMC shall pay charges, commission or fees related to distribution in the manner specified by SEBI.
What went with it. SEBI's 2025 circular withdrew transaction charges (earlier deducted from subscriptions of Rs 10,000 and above) and the requirement for investors to pay upfront commissions. Distributors are compensated directly by AMCs, as agents of AMCs, and no charges are deducted from investor contributions.
What is paid on top. SEBI's additional commission for new individual investors from B-30 cities and new women investors — 1 percent of the first lump sum (investor staying at least a year) or of first-year SIP instalments, capped at Rs 2,000 — is paid from the 2 basis points AMCs set aside for investor education, in addition to trail.
The contradictions in the workbook. The Master Circular wording bars upfronting of any trail commission — yet Chapter 6.5.3 says upfronting of trail commission is allowed only in case of SIP inflows. Other passages still refer to regimes that no longer apply: the nominee rules mention "upfront and trail commission", AGNI provides for claw-back of upfront commissions on switches from Regular to Direct plans made after 1 January 2013, and the execution-only rules mention "standard flat transaction charges". The workbook's own footnotes to each say that distributors are eligible only for trail commission, and upfront commission and transaction charges have been discontinued.
A worked example
Sanjana, a distributor in Surat, brings in a Rs 12,00,000 lump sum into the regular plan of an equity scheme. The trail rate is 0.80 percent a year (illustrative).
What she can be paid.
Daily trail = 12,00,000 × 0.80% ÷ 365 = Rs 26.30
Over a year, if the value stays at Rs 12 lakh ≈ Rs 9,600
If the investment grows to Rs 15 lakh, her trail grows with it; if the client redeems after six months, her trail stops.
What she cannot be paid.
| Offer from the AMC | Allowed? |
|---|---|
| Rs 12,000 "upfront" at 1 percent on day one | No — upfront commission |
| The first year's Rs 9,600 of trail, paid in advance | No — upfronting of trail on a lump sum |
| An overseas conference trip for top mobilisers | No — incentive in kind / sponsorship |
| Rs 500 deducted from the client's Rs 12,00,000 as a transaction charge | No — withdrawn in 2025 |
What she can also earn. If the client is a new woman investor and stays invested for a year, Sanjana qualifies for additional commission of 1 percent of the first application — Rs 12,000, capped at Rs 2,000 — on top of her trail. Had the money come through an SIP, Chapter 6.5.3 would permit upfronting of trail for that inflow.
Why NISM asks about it
Chapter 6.5 (Revenue for a mutual fund distributor) opens with the full trail model, and Chapter 6's sample questions test the consequences: distributors earn commission from mutual funds (not fees from investors), and transaction charges and upfront commissions are the costs investors no longer bear after SEBI's 2025 circular. Expect true/false statements built on the phrase "in cash or kind, through sponsorships, or any other route" and on the SIP exception.
Common exam traps
- Only trail commission, only in money. Gifts, trips and sponsorships are incentives in kind and are barred.
- No upfront commission, and no upfronting of trail — except that Chapter 6.5.3 allows upfronting of trail for SIP inflows.
- Transaction charges are withdrawn; nothing is deducted from the investor's investment amount.
- The B-30 / women additional commission is paid on top of trail, capped at Rs 2,000, from the 2 bps investor-education set-aside.
- Self-business earns nothing.
- Passages mentioning upfront commission claw-back or flat transaction charges describe discontinued regimes — the workbook's footnotes say so.
Where this is taught
Free preparation for NISM Series V-ARelated terms
- Direct and regular plansThe two routes into the same mutual fund scheme: a direct plan with no distributor and a lower expense ratio, and a regular plan that pays distributor commission — same portfolio, separate NAVs.
- Systematic Investment PlanA facility to invest a constant amount into a scheme at regular intervals, which buys more units when the NAV is low and fewer when it is high and so averages the cost of acquisition down.
- AGNIAMFI Guidelines & Norms for Intermediaries — the code of conduct for agents, brokers, distribution houses and banks selling mutual funds, enforced by warning and then cancellation of AMFI registration.
- Cooling off periodThe 12 months after an investor-initiated change of distributor code in a folio, during which no trail is paid to either distributor; only afterwards may the AMC consider paying the new one.
- Execution onlyA mutual fund transaction not booked as advisory. If the distributor believes it is not appropriate, it needs a written unsuitability notice acknowledged by the investor and the investor's prior written confirmation.
- Trail commissionThe commission an AMC pays a mutual fund distributor as a percentage of the current value of the investments they brought in, calculated daily and paid for as long as the investor stays invested.
- Equal trail basisSEBI's rule that a Category III AIF may charge distribution or placement fee only as an equal trail — no upfront fee at all, and paid only out of the manager's own management fee.