"Insurance companies continue to offer high commission rates of 30-70 per cent to agents on first-year premiums. This is likely to give further boost to unit-linked insurance product, while MFs could lose ground due to lower incentives after regulatory changes," said chief executive officer of a fund house, requesting anonymity.

The current payouts offered to LIC agents have grown by 11 per cent, compared to the payouts made in first nine months of previous financial year. On the other hand, commissions offered to MF distributors have contracted by seven per cent in 2018-2019. The numbers for current fiscal will issued with a lag by the Association of Mutual Funds in India.

Industry players say there are concerns around viability of MF distribution, with Sebi putting curbs on upfront commissions for systematic investment plans or SIPs, which is a popular mode among smaller distributors and small-ticket investors.

Sebi's new norms allow upfront commission for SIPs, but only up to Rs 3,000 per scheme and only for first-time MF investors.

"The lack of incentives is pushing MF distributors to consider switching to insurance products. Scrapping of upfront commission is making it difficult for individual players to cover initial costs of distribution," said Srikanth Matrubai, chief executive officer of Sri Kavi Wealth.

MF participants say that client acquisition costs tend to be higher in the industry, and can these can only be absorbed after a decent asset size is built over a longer period.

The number of new registrations by individuals for MF distribution has been on a declining trend. The MF industry has so far added 7,223 new individual distributors in the current fiscal (between April, 2019-January,2020), which is half of the additions seen in the corresponding period in previous fiscal.

In September 2018, Sebi introduced new slabs for charging total expense ratio (TER), which brought down the maximum ceiling on TER to 2.25 per cent, from 2.5 per cent.

According to industry participants, larger fund houses passed the bulk of these cuts onto the distributors.