How PMS distributor commission works
A PMS distributor earns only trail commission, paid from the PM's fee and shown to the client.
A PMS distributor is paid by the portfolio manager, not by the client. Since SEBI's February 13, 2020 circular, that payment can only be a trail, it can only come out of the fees the PM itself earns, and the prospective client must be told the amount before signing up. There is no upfront commission because there is no upfront fee to pay it from.
For an RM moving from mutual funds, the shape is familiar: trail on assets that stay invested. The difference is that the client sees the rupee amount paid to you in every quarterly statement.
You save ₹100
- Full-length mock tests
- Chapter-wise question bank
- AI study plan
One payment, no subscription · Valid for 1 month
The rules, and where each comes from
| Rule | Source |
|---|---|
| Commission only on a trail basis | Master Circular 2.4.1.2 |
| Paid only from the fees the PM receives, never charged to the client separately | Master Circular 2.4.1.2 |
| No upfront fee to the client, directly or indirectly | Reg 22(11) |
| Prospective client told the commission the distributor earns for that investment approach | Master Circular 2.4.1.3; code of conduct item viii |
| Commission paid to the distributor for that client shown in the periodic report | Reg 31(1)(g); Annexure 5D |
| Commission never the basis for a recommendation | Code of conduct item vi |
| Direct clients: no charges at onboarding except statutory charges; report shows "Direct Plan" | Master Circular 2.3.3; Annexure 5D |
Worked example: where the trail comes from
Illustrative rates only. SEBI fixes the structure, not the percentage.
- 1
The account
A client invests ₹75 lakh in a discretionary approach with a fixed fee of 2% a year. On average assets of ₹75 lakh, the PM earns ₹1,50,000 in the year.
- 2
The distributor's share
If the PM's agreement with the distributor shares 0.75% a year of assets, the trail is ₹56,250. It is paid out of the ₹1,50,000, so the client's total cost stays ₹1,50,000 plus expenses.
- 3
What the client sees
Before onboarding: that this approach pays the distributor 0.75% a year. Every quarter: the rupee amount actually paid to the distributor for this account.
- 4
If the client leaves
The trail stops with the assets. Nothing was paid upfront, so there is nothing to claw back.
Free account, this exam preselected.
When commission is withheld or stops
- check_circleCertification lapses: no commission until eligibility is regained or for up to 12 months, whichever is earlier; no new clients in that period; accrued trail is paid if eligibility returns within 12 months and forfeited otherwise (APMI circular of April 26, 2023, confirmed by SEBI).
- check_circleNot registered with APMI: commission on new assets from January 1, 2025 was withheld; distributors still unregistered after July 31, 2025 cannot source new assets, and withheld commission goes back to the clients (SEBI letter of April 9, 2025).
- check_circleClient changes distributor: the new distributor's trail may start after a 30-day cooling-off period, at the lower of the two distributors' rates (APMI guidelines of November 11, 2025).
- check_circleMutual fund holdings inside the PMS: PMs may buy mutual funds only through direct plans and may not charge distribution fees on them (Reg 24(5)-(6)), so there is no second layer of MF commission.
How XXI-A tests this
Short recall questions ask the basis (trail only) and the source (the PM's fees). Scenarios offer an upfront commission of 1% funded by a one-time account opening charge, or a PM paying a distributor a joining bonus out of its own reserves; both fail because commission must be trail-based and paid from fees received. Another asks what a direct client pays at onboarding: only statutory charges. The trap is assuming that disclosing a commission makes any arrangement acceptable.
FAQs
How do PMS distributors earn commission?expand_more
Only as a trail, paid by the portfolio manager out of the fees it receives from the client. Upfront commission is not allowed.
Does the client pay the PMS distributor separately?expand_more
No. The commission comes out of the PM's own fee. The client is told the amount before onboarding and sees what was paid in each periodic report.
Is PMS cheaper if I invest directly without a distributor?expand_more
Every PM must offer direct onboarding with no charges except statutory charges at onboarding. Whether the ongoing fee differs depends on the PM's fee structure in its Disclosure Document.
What happens to my trail if my NISM XXI-A certificate expires?expand_more
Under APMI's SEBI-confirmed practice, the PM withholds it for up to 12 months and you cannot bring new clients. Renew within 12 months and the accrued trail is paid; otherwise it is forfeited.