Direct will grow at the cost of MFD's

After quite some time, I am back to pick up our pen and come up on the side of my distributors' fraternity if the Indian economy. They might be termed as advisor/mutual fund agents/brokers, but they are small and medium enterprises of the service industry that create wealth for the poor citizens of the Indian economy. The recent consultation paper of the SEBI regarding mutual funds being given instead of salary in a certain proportion would be a hugely impactful decision for the industry.  Many industry veterans and people have welcomed this consultation paper, but we beg to differ.   This is going to be a perfect recipe for RIA business growth and direct plans where MFDs will be least benefited.

In March 2026, SEBI announced measures, including a working group to review overlaps between MFDs and IAs, digital platforms for advisors, and simplified certification requirements. Unlike commission-based MFDs, RIAs operate on a fee-based model and can recommend direct mutual fund plans with lower expense ratios. The debt distribution framework similarly emphasises transparency and lower costs, which philosophically aligns with the RIA model rather than the commission-driven MFD approach. MFDs will suffer once these modes of investing and allocating mutual fund units from corporates comes into play.

In the last couple of years, we have witnessed a huge transformation in KYC related matter. By simplifying KYC formalities, documentation, and transaction execution, SEBI is effectively reducing the complexity barriers that previously made institutional intermediaries necessary. This democratisation of access allows investors to potentially bypass traditional distribution channels entirely once they become familiar with the process.

The market has been created by the MFDs, and then the same is now being transformed in such a way that traditional business will come to an end. This SME segment of the mutual fund advisors or MFDs will come to an end gradually. Currently, we are already struggling with the burden of GST and rationalisation of several AMFI ARN numbers, which is bound to get consolidated as per compliance and also new markets will stop exploring as the earnings keep coming down with TER rationalisation.

The RIA business will grow, and direct channel flow will grow, which will bring down the TER and cause these MFDs to suffer from falling income. The next generation of clients is more focused towards a self-help mode of operating, and this pattern will grow as the entry of new MFDs becomes unattractive. Now with AI coming up and this SEBI’s consultation paper speaks loudly that the MFD business is becoming risky, and this SME segment will narrow down going ahead.  The advisory models will grow for client acquisition, and the mutual fund will be a side business, and it will be more focused on new products and alternative products like PMS, AIF & SIF.

The industry size of PMS, AIF & SIF will grow steadily as the mutual fund business becomes less attractive commercially. Investors are well informed, and corporates will choose their own models of suggestion where a direct model of business will grow more. Don’t be under the assumption that in the coming days corporates will come to MFDs. That segment has a limitation, hence nothing to rejoice much. Overall, MFDs will suffer once this model of operating gets into play. This will impact Tier 2 and 3 markets more, as clients working from these places in companies will get mutual fund investment advice much better and earlier. Clients will win, but at the cost of the SME channel called Mutual Fund Distributor.