Mutual Fund Distributor vs SEBI RIA: What's the Difference?

A mutual fund distributor (MFD) helps you invest in the Regular plans of mutual fund schemes and is paid a trail commission by the fund house out of the scheme's expense ratio, so you pay no separate fee. A SEBI-registered Investment Adviser (RIA) charges you a fee directly, works with Direct plans and cannot earn distribution commission from the clients it advises. Neither model is automatically right for everyone. The choice depends on whether you want hands-on help with execution and servicing, fee-only advice, or to manage everything yourself.

What does a mutual fund distributor do?

An MFD is registered with the Association of Mutual Funds in India (AMFI) and holds an AMFI Registration Number (ARN). To get one, an individual must first pass the NISM Series V-A (Mutual Fund Distributors) certification exam, and the ARN has to be renewed periodically.

Day to day, a distributor typically helps with:

• KYC, account opening and paperwork for new investments
• Setting up SIPs, switches, redemptions and nomination updates
• Shortlisting schemes, from those they distribute, that match your stated risk profile
• Consolidated reporting across fund houses and periodic reviews
• Staying in touch during volatile markets, which many investors find useful for staying disciplined

There is an important limit. Any advice an MFD gives must be incidental to distribution. AMFI describes this as basic guidance on the schemes being recommended, not detailed financial planning or holistic investment advice. An MFD cannot charge you an advisory fee for it.

How is a mutual fund distributor paid?

The distributor is paid by the asset management company (AMC), not by you directly. The payment is a trail commission: a small percentage of the value of your investment, paid for as long as you stay invested. It comes out of the Total Expense Ratio (TER) of the Regular plan, which is why the Regular plan of a scheme has a higher TER than its Direct plan.

A few safeguards apply:

• No upfront commission. Since October 2018, SEBI has required fund houses to follow a full-trail model, with a narrow exception for first-time investors in small SIPs.
• Disclosure. SEBI requires distributors to disclose the commission they earn on the schemes they recommend, and your half-yearly Consolidated Account Statement (CAS) shows the actual commission paid to your distributor in each scheme.
• No separate fee. Because the cost is built into the TER, you do not write a cheque to an MFD.

What is a SEBI-registered Investment Adviser?

An RIA is registered under the SEBI (Investment Advisers) Regulations, 2013. Investment advisers can be individuals or companies, and they must meet SEBI's qualification, certification and net worth requirements. They owe their clients a fiduciary duty, meaning they must act in the client's interest when giving advice.

RIAs are paid by the client, not by the fund house. For individual and HUF clients who are not accredited investors, SEBI caps the fee at either:

• up to 2.5% of assets under advice a year (AUA mode), or
• a fixed fee of up to ₹1,51,000 a year per family of client (fixed fee mode), a limit SEBI revises periodically.

Advisers may also collect fees in advance for up to a year if the client agrees. Because they are paid by you, RIAs generally recommend Direct plans, which carry no distribution commission.

Can an investment adviser also be a distributor for the same client?

No. SEBI requires segregation of advice and distribution at the client level. A client must choose either advisory services or distribution services within the same individual adviser's family or the same corporate group, not both. For an individual client, the "family of client" counts as a single client for this purpose. A company that offers both must run its advisory work through a separately identifiable division at arm's length. The rule is designed to remove the conflict of earning both a fee and a commission from the same person.

How do Regular and Direct plans differ?

Every mutual fund scheme has two plans with the same portfolio and the same fund manager:

• Regular plan: bought through a distributor. Its TER includes the distribution cost, so its NAV is slightly lower over time.
• Direct plan: bought directly from the AMC, through an RIA, or through a platform that does not take commission. Its TER is lower because there is no distribution cost.

The gap in TER is the cost of distribution. Whether that cost is worth paying depends on what you receive for it. Our explainer on what a Direct plan in mutual funds is covers the mechanics, and our guide on choosing between Direct and Regular plans walks through the trade-offs.

MFD vs RIA vs DIY: how do they compare?

Which option suits whom?

• An MFD may suit you if you want someone to handle execution, paperwork, SIP changes and consolidated reporting, and you value periodic reviews and a steadying voice when markets fall, without paying a separate fee.
• An RIA may suit you if you want fee-only advice, prefer Direct plans and are comfortable paying a visible fee in return for advice that is not linked to commission.
• DIY with Direct plans may suit you if you are confident choosing schemes, have the time to track them and can stay disciplined through market swings.

Some investors use more than one route for different goals. Whatever you choose, be clear about what you are paying and what you receive for it.

How do I check whether a distributor or adviser is registered?

• For an MFD: use the ARN search on the AMFI website (amfiindia.com) to confirm the ARN, the holder's name and its validity.
• For an RIA: check the list of registered intermediaries on the SEBI website (sebi.gov.in), under Investment Advisers.

Always match the name and registration number shown on any communication with the official record.

Where can I raise a complaint?

Start with the intermediary or the fund house. If the issue is not resolved, you can lodge a complaint on SEBI SCORES, SEBI's online complaints system. If that does not settle it, the SMART ODR portal offers online conciliation and arbitration for disputes in the securities market.

Where does Sanriya Finvest fit?

To be plain about our own position: Sanriya Finvest Pvt. Ltd. is an AMFI-registered mutual fund distributor (ARN-193359) and an APMI-registered PMS distributor (APRN01056) based in Pune. We are not a SEBI-registered investment adviser. We distribute Regular plans and receive trail commission from fund houses; we charge no separate fee, and any guidance we provide is incidental to distribution. You can read our commission disclosure and our registration details.

If you would like help with execution and servicing, see our mutual fund distribution services or learn more about working with a mutual fund distributor in Pune. You can also ask for a free portfolio review of your existing mutual fund holdings.

Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.