In the mutual fund context, brokerage refers to the commission paid to distributors or brokers for selling mutual fund schemes — embedded in the Regular Plan's expense ratio as a trail commission.
Unlike stock broking, mutual fund investors don't pay explicit brokerage charges. Instead, distributors (brokers) earn a trail commission from the AMC — typically 0.5%–1.5% per year of the investor's AUM in the Regular Plan — as long as the investor stays invested. This commission comes from the fund's expense ratio (TER), not from the investor's pocket directly. However, it reduces the investor's net return because the TER is higher in the Regular Plan than the Direct Plan.
When a broker or distributor helps you invest in a mutual fund, they don't charge you a direct fee. Instead, the fund house pays them an annual 'trail commission' (brokerage equivalent) for as long as your money stays in that Regular Plan. This commission is recovered by charging a slightly higher expense ratio in Regular Plans. The investor pays indirectly through lower returns.
Distributor earns a trail commission (0.25%–1% per year) from the AMC on all assets they manage.
SEBI regulates commission structures — distributors must disclose commissions to clients.
Upfront commissions were largely phased out by SEBI in 2018; trail commissions now dominate.
Direct Plan investors pay no brokerage — the entire TER reduction goes to them.