Distributors sell investment products to people, often the retail investor, independent of AMCs but drawing a fee from them.
How do distributors earn money?
The AMCs pay the distributors for their financial products we buy from the latter, in the form of a commission that is the percentage of the invested amount. It varies from company to company. For recurring transactions such as a SIP with a distributor, the distributor gets a trailing commission on the invested amount, again as a percentage of the amount invested.
Due to inefficiencies in the industry, distributors often display their biases despite being a third-party player. They push products and AMCs, which give them more commissions rather than what is best suited for the investor.
Distributors help in maintaining liquidity in the market. They try to sell products that the asset managers are unable to sell. They are the ones who understand the investor’s requirements and sell them what is best suited for them. For ex:- an investor may be interested in high returns product and can bear high risk, the distributor can suggest him a product which satisfies this criterion.
What is a fund distribution platform?
A fund distribution platform acts as a link between the distributors and Asset Management Company.
Top mutual fund distributors are:-
- ICICI bank
- Kotak Mahindra Bank
- Axis Bank
- ICICI Securities
- Citibank NA
- HDFC Bank
- Aditya Birla Finance
As per the report of the Association of Mutual Funds in India, Top 30 mutual fund distributors handle one-fourth of the total assets under management of the mutual fund industry.