Last updated: 30 October 2026 · By Mahak Jain
Quick answer: No. A mutual fund distributor (MFD) cannot sell direct plans. SEBI has clarified that if you act as an MFD for a client, you cannot deal in Direct Plans for that client. AMFI repeats this in its Master Circular for MFDs (January 2026). A direct plan, by SEBI's definition, is an investment not routed through a distributor, so it pays no commission. If you put your ARN on a direct plan, you earn nothing on it. As an MFD you can only sell regular plans and earn trail commission from the AMC. Want to help clients with direct plans for a fee? You need SEBI registration as an Investment Adviser (RIA). An individual RIA cannot also work as a distributor.
हिंदी में: नहीं, म्यूचुअल फंड डिस्ट्रीब्यूटर अपने क्लाइंट के लिए डायरेक्ट प्लान नहीं बेच सकता। वह केवल रेगुलर प्लान बेचकर AMC से कमीशन कमाता है। डायरेक्ट प्लान में फीस लेकर सलाह देने के लिए SEBI से RIA रजिस्ट्रेशन जरूरी है।
| Key fact | MFDs and direct plans |
|---|---|
| Can an MFD sell direct plans? | No. An MFD cannot deal in Direct Plans for a client |
| Rule | SEBI letter to AMFI, 6 September 2021; AMFI Master Circular for MFDs, 14 January 2026 |
| What a direct plan is | Investment not routed through a distributor (SEBI, since 1 January 2013) |
| Commission on direct plans | None. Direct plans pay no commission |
| What an MFD can sell | Regular plans, with a valid ARN and EUIN |
| How an MFD is paid | Trail commission from the AMC only |
| Who can advise on direct plans for a fee | A SEBI-registered Investment Adviser (RIA) |
| Can an individual be both MFD and RIA? | No. An individual RIA cannot provide distribution services |
| ARN invalid, suspended or not empanelled | Business goes to Direct Plan, no commission |
Can a mutual fund distributor sell direct plans?
The rule: "If any entity is acting as a Mutual Fund Distributor (MFD) for a particular client, then he cannot deal in Direct Plans for such a client." SEBI wrote this to AMFI on 6 September 2021, and AMFI has made it part of its rules for every MFD.
So the answer is a clear no. It doesn't matter if the client asks for it, or if you place the order on an exchange platform, an app or a paper form. If you are the client's distributor, you deal only in regular plans.
AMFI also says MFDs must show clearly on any digital platform they offer that the scheme being bought is a Regular Plan, which pays commission to the MFD, with a link to the commission rates.
What is a direct plan and a regular plan?
Every mutual fund scheme has two versions. Same fund manager, same portfolio. The only difference is how you buy it and what it costs.
| Direct plan | Regular plan | |
|---|---|---|
| How you invest | Straight with the AMC, not through a distributor | Through an MFD with an ARN |
| Commission | None | Trail commission paid by the AMC to the MFD |
| Expense ratio | Lower (no distribution cost) | Higher (includes distribution cost) |
| NAV | Separate, usually higher | Separate, usually lower |
| Who helps you | No one, or an RIA you pay a fee | Your distributor, at no direct fee |
SEBI created direct plans through its circular of 13 September 2012, in force from 1 January 2013. It says a direct plan "shall have a lower expense ratio excluding distribution expenses, commission, etc., and no commission shall be paid from such plans." For a fuller comparison, see regular vs direct plan.
Why can't a mutual fund distributor deal in direct plans?
- ✓ By definition: a direct plan is an investment not routed through a distributor. Once a distributor routes it, it stops being "direct".
- ✓ No commission to pay you: SEBI bars commission from direct plans, and AMFI says MFDs are paid only trail commission by AMCs. There is no legal way to earn on a direct plan as an MFD.
- ✓ Advice and selling are kept apart: SEBI separates people who sell products for commission (MFDs) from people who advise for a fee (RIAs). An MFD handling direct plans would blur that line.
What happens if a distributor puts their ARN on a direct plan?
You don't earn anything, and it can count as a breach of AMFI rules. AMCs handle it in their own documents. For example, PPFAS Mutual Fund says that if a distributor code is written but Direct Plan is selected, "the distributor code will be ignored" and units go into the Direct Plan.
AMFI's rules also send business to the Direct Plan, with no commission, in these cases:
- ✓ Your ARN has expired: business done while the ARN is invalid goes to Direct Plan. Trail on older business is held back until you renew.
- ✓ You are not empanelled with that AMC: purchases or switches under your ARN go to Direct Plan.
- ✓ Your ARN is suspended or cancelled: purchases, switches and SIPs under it go to Direct Plan.
Keep your ARN renewed and your empanelments in place. See ARN renewal and MFD empanelment.
Can a mutual fund distributor charge a fee for direct plans?
No. AMFI says MFDs are paid only trail commission, by the AMCs they are empanelled with. Taking a fee from a client to advise on direct plans is investment advice, which needs SEBI registration as an Investment Adviser.
The same rule applies to other SEBI-registered firms that also hold an ARN:
- ✓ Stock broker, non-individual RIA or PMS acting as distributor for a client: can offer that client only Regular Plans, using its ARN.
- ✓ The same firm acting as adviser for a client: can invest that client only in Direct Plans, using its broker, RIA or PMS code, and gets no commission from AMCs.
Can a mutual fund distributor become an RIA?
Yes, but an individual has to choose. Under Regulation 22(1) of the SEBI Investment Adviser Regulations, an individual RIA cannot provide distribution services. So you can't hold an ARN for selling and be an individual RIA at the same time.
A company or LLP can do both, but only with client-level segregation: each client is either an advisory client or a distribution client, never both.
Also note: only a SEBI-registered Investment Adviser can call themselves "Independent Financial Adviser", "IFA", "Wealth Adviser" or any similar name. As an MFD, use "Mutual Fund Distributor". More on the difference: MFD vs RIA vs insurance agent.
MFD vs RIA vs execution-only platform: who can handle direct plans?
| MFD | RIA | Execution-only platform | |
|---|---|---|---|
| Registered with | AMFI (ARN) | SEBI | AMFI (Category 1) or SEBI as stock broker (Category 2) |
| Plans it handles | Regular only | Direct only | Direct only |
| Paid by | AMC (trail commission) | Client (advisory fee) | Category 1: flat fee, max ₹2 per transaction |
| Gives advice? | Helps choose schemes, no fee for advice | Yes, for a fee | No, execution only |
| Can an individual do it? | Yes | Yes, but then no distribution | No. Category 1 must be a body corporate with ₹1 crore net worth |
Execution-only platforms (EOPs) were set up under SEBI's circular of 13 June 2023, only for transactions in direct plans. They are not an option for an individual MFD.
Can a distributor invest their own money in direct plans?
Yes. When you invest your own money, you are the investor, not a distributor dealing for a client. AMFI's rule stops you dealing in Direct Plans for a client.
There is also no point in putting your own money in a regular plan under your ARN: AMFI says MFDs are not entitled to commission on their own investments, and AMCs remove these from your commission. The exception is when you are only the second or third joint holder.
What should a distributor do if a client wants a direct plan?
- Don't place it for them. Don't put your ARN on a direct plan, and don't place direct-plan orders for a client you serve as an MFD.
- Explain the trade-off honestly. The direct plan costs less. The regular plan pays for your help with fund choice, rebalancing, paperwork and staying invested in bad markets.
- Tell them how to switch, if they still want to. The client sends the switch request to the AMC or RTA. Switching from a regular plan to a direct plan of the same scheme is taxed as a sale, so capital gains tax may apply.
- Point them to the right channel: the AMC's own website or app, an execution-only platform, or an RIA if they want paid advice.
Spot the warning signs early: signs a client is switching to direct plans.
How do distributors earn if they can't sell direct plans?
Through trail commission on regular plans. AMCs pay it as a percentage of your clients' assets under your ARN, for as long as the money stays invested. Upfront commission is not allowed.
So your income grows with your clients' assets. Read how MFD commission works and how much an MFD earns.
Make regular plans worth it for your clients
Dhan Saarthi (Khazana Fintech Pvt. Ltd., AMFI ARN-325085): keep 90% of the trail on your clients, one onboarding instead of 40+ AMC empanelments, no upfront or seat fees.
Book a Demo with Dhan SaarthiSources
- AMFI: Master Circular for Mutual Fund Distributors, 14 January 2026 (Chapter 9: transactions under Direct Plans)
- SEBI: Circular CIR/IMD/DF/21/2012, 13 September 2012 (separate plan for direct investments)
- AMFI: Guidelines for execution-only platforms
- PPFAS Mutual Fund: Direct Plan and Regular Plan FAQs
- SEBI letter SEBI/IMD1/DOF-1/SK/2021/25517/1, 6 September 2021 (as quoted in AMFI's Master Circular)
Mutual fund investments are subject to market risks, read all scheme related documents carefully. Distribution services are offered through Khazana Fintech Pvt. Ltd. (AMFI ARN – 325085). Rules are as of October 2026.
