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Brokerage Concepts

What is Brokerage?

Brokerage is payment made to the distributors who procure funds for Mutual Fund. Brokers help the investor in making investment decisions.

Brokerage Payments may be are made on Monthly Basis and Quarterly basis. The payments typically are made as follows:

Monthly Payments

  • Upfront: Upfront Payment is a one time payment made to the brokers in the following month of the procurements of the funds.

  • First Year Trail: The payment is made across all schemes till the investor remains in the fund for the units held for 1st year. Annualized is also referred as First year Trail Fee.

  • Incentives: the incentives may be are paid based on the mobilization of applications, achieving targets etc. by the brokers.

Quarterly Payments

  • Trail: The payment is made across all schemes till the investor remains in the fund for the units held from second year onwards.
The brokerage for previous month is released by 15th of every month.

Typical Brokerage Calculation

  • Upfront: Amount x Rate / 100

  • Annualized / Trail:
    Daily product * Rate/100 * 1/365
    Daily product = Balance units * Cumulative NAV

For example, Broker X procures 1, 00,000 units on 1st January 2009 and the rate of commission is 0.50 % p.a. payable monthly and the investor redeems 50000 units on 15th March 2009. Cumulative NAV (addition of all the NAV from 1st of the month to the end of the month) is Rs.1500.00 in January, Rs.1256.54 in February and Rs.624.00 in March (cumulative up to 14th March) and Rs.598.24 from March 15th to 31st.

The payments may will be made as follows to distributor X.

January 2054.79
February 1721.29
Up to March 14th   854.79
From 15th -31stMarch   409.75

  • Brokers are not eligible for brokerage for their own investments in mutual funds.

  • Brokers have to submit Annual certification within 3 months of completion of every Financial Year( Declaration in the format specified by SEBI/ AMFI) failing which brokerage would be held back till the time it is submitted.

It may be noted that the Brokerage Concepts could differ and vary from time to time or from fund house to fund house. Hence the brokers are advised to get themselves conversant with such concepts practiced by the concerning fund houses/Asset Management Companies.


Source: www.Karvymfs.com
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