Trail commission

A trail commission is the recurring cut a distributor earns each year you remain invested in a regular plan, paid out of the fund’s expense ratio. Because it continues year after year, it is the main reason a regular plan costs more than a direct plan over the long run.

How it works

Unlike a one-time sales fee, a trail commission is ongoing. For as long as your money stays in a regular plan, the fund house pays the distributor who sold it to you a small yearly percentage of your investment, drawn from the scheme’s expense ratio. You never see a separate charge; it is baked into the fee that quietly reduces your return every year. The bigger your balance grows, the larger the rupee trail the distributor earns.

Why it matters

The trail is how distribution is funded, and it is fair if you genuinely receive advice. The problem is that it keeps being paid even if you were sold the fund once and never advised again, so you can pay a yearly cut indefinitely for nothing. Over decades, that recurring drag compounds into a meaningful chunk of returns on an identical portfolio.

The direct-plan alternative

A direct plan of the same scheme carries no trail commission, which is exactly why its expense ratio is lower. If you choose and manage your own funds, the direct plan keeps that yearly trail in your pocket instead. See the same fund for a lower cost.