More than a year after suspending the beyond-top-30 incentives, the capital market regulator SEBI has shelved the decision to revive it, as the industry could not device effective checks and balances to prevent its misuse.
Last February, SEBI directed mutual fund companies to keep the small-town linked sop of additional expense ratio in abeyance, citing a lack of a system-driven mechanism to check the abuse of the incentive structure.
To promote financial inclusion through increased penetration of mutual funds and in investors interest, SEBI had permitted fund houses an additional expense ratio of 30 basis points on new inflows (up to Rs 2 lakh) from retail investors for encouraging mutual funds garnering funds from B-30 cities and energising the distribution network.
Despite discontinuation of the incentive, the inflow from the smaller cities has been very strong due to outreach of the mutual fund industry amid intense competition and hence SEBI is not very keen on re-looking at reviving this sop, said an executive of a leading fund house.
Nirav Karkera, Head of Research at Fisdom said the industry has witnessed a sustained pace of growth despite the cut in B30 incentives, as awareness and adoption of mutual fund investment have picked up natural momentum.
The erstwhile format of B30 incentives may not work in the same format but there is immense scope to restructure incentives in a way to propel further expansion. It should be implemented not just on the basis of beyond pin-codes of top-30 cities but also for inclusion of varied strata of the society to promote deeper awareness creation and inclusion, he added.
Earlier, SEBI found inconsistencies and deficiencies in applying the incentive by splitting transactions (to below ₹2 lakh), churning investments, and calculating how B-30 incentives were calculated to include switch transactions for calculating B-30 incentives. Mutual funds promoted specific investments by offering incentives to select schemes rather than across schemes.
Palka Arora Chopra, Director, Master Capital Services said diligent regulatory oversight would ensure that the incentives are used ethically for stimulating market growth and support the broader goal of financial inclusiveness across the country
SEBI should implement it with proper checks and balances and reinstate the B30 incentives to enhance market penetration in lower-tapped areas, she said.