Who Pays Your Advisor? The ₹1.25% Secret

When someone sells you a mutual fund, insurance, or loan product, they often earn a commission from the company — not from you. This hidden incentive can push them to recommend what's best for their wallet, not yours.

Here's what happened: Mutual fund distributors earn trail commissions of 0.5%–1.25% per year on your total invested amount — paid by the fund house, not disclosed upfront to you.. Insurance agents typically earn 15%–35% of your first-year premium as commission, creating strong incentive to sell high-premium endowment or ULIP plans over pure term insurance.. SEBI-registered Investment Advisers (RIAs) must charge you a direct fee and cannot earn product commissions — but fewer than 1,400 RIAs serve all of India's 1.4 billion people..

What you should do: Ask your advisor point-blank: 'Are you earning a commission on this product, and how much?' — any honest advisor will tell you.. Compare regular mutual fund plans vs direct plans on your AMC's website; direct plans have no distributor commission and can deliver 0.5%–1% higher annual returns.. Before buying any insurance, check the product's commission structure on IRDAI's public disclosure portal — high-commission products often have lower actual returns for you..

If your advisor pushes ULIPs or endowment plans over term insurance + mutual funds, ask for the commission disclosure in writing. Agents are legally required to share it under IRDAI regulations.