Market regulator SEBI plans to cut down mutual fund incentives paid to distributors by redefining B30 (beyond top 30) cities to B45. Once SEBI officially announces its decision, the additional incentive of 0.30 per cent paid to distributors for getting investments of up to ₹2 lakh into mutual funds from 15 small cities will be stopped, said sources.
A review of the existing B30 incentive was discussed to ascertain its impact on MF penetration as this incentive was fixed almost five years back, said an MF executive. Given the positive response and increasing fund flow into B30 cities, SEBI wants the incentive to be cut for cities which have matured in terms of fund flows in the last few years, he added.
Subsequently, he said it was decided that the incentive be offered only for fund flows from B45.
Benefit of doubt
Early this month, the B30 incentive was suspended as SEBI found it being misused by distributors by splitting bulk investments into ₹2 lakh for earning that extra incentive. The regulator has also come across distributors churning existing investment from B30 cities to earn more incentives.
While multiple applications could be a concern for the regulator, one must also give the benefit of doubt to distributors as they may attempt to protect investors’ interest through asset allocation and diversification strategy, said Sanjay Mehta, an independent financial advisor.
What does SEBI’s new norms mean for the shareholders?
SEBI should also recognise deepening MFs to far-flung locations, given the fact that only 3.5 crore people of the overall 60 crore PAN card holders invest in MFs, he added.
Moreover, with the Centre’s intention to enhance financial literacy in smaller towns, the industry should make distribution a sustainable business and encourage more financially literate people to take up MF distribution as a profession, he said. SEBI first offered the incentive to B15 in 2012 and enhanced it to B30 in 2018.