With the SEBI regulations emphasising on higher participation from rural areas, mutual fund houses are further strengthening bank partnerships. In the last one month period, fund houses have been tying up with banks in a bid to increase their rural reach.
SEBI, in August, had issued regulations asking fund houses to ensure 30 per cent of the inflows from beyond the top 15 cities. As of June, the top 15 cities contribute to 86.95 per cent of the total assets under management of the industry. The AUM of the industry as of August was Rs 7.5 lakh crore.
In the last two months, more than six fund houses have announced tie-ups with PSU banks. However, it must be noted that fund houses have always had tie-ups with banks for the distribution of mutual funds.
30 bps increase
According to SEBI, mutual funds can charge 30 basis points increase in total expense ratio if either 30 per cent of the gross new inflows or 15 per cent of the average assets under management (year-to-date) of the scheme is from beyond the top 15 cities.
With the new regulation in place, fund houses are now tying-up with PSU banks which can best reach out to the rural population.
The most recent tie-up announced was that of Peerless Mutual fund with Allahabad Bank. Before that, SBI Mutual Fund announced its collaboration with Ratnakar Bank, which has 114 branches States such as Maharashtra, Gujarat, Delhi, NCR, Karnataka, Tamil Nadu and Goa.
Syndicate Bank leads
Syndicate Bank has seen most the most interest among fund houses with four asset management companies partnering with it for the sale of its mutual fund schemes.
IDBI Asset Management, HDFC Mutual Fund, Birla Sun Life and Reliance Mutual fund will now be using the Syndicate Bank platform for the distribution of their products. Syndicate Bank, with a network of more than 2,700 branches, is known for its good presence in the tier-II and tier-III cities.
For the bank, it is an opportunity to increase contribution for their fee income. M.G. Sanghvi, Chairman and Managing Director, Syndicate Bank, said that the bank had in the recent past taken initiatives such as introducing separate vertical for medium, small and micro enterprises, tying up with mutual funds and sale of gold coins, etc, for augmenting fee-based income.
Reliance Mutual Fund, which last tied-up with Bank of India in October 2009, has in the last two months tied up with Syndicate Bank and IOB for the sale and distribution of its schemes. Sundeep Sikka, CEO of Reliance Capital Asset Management, said, “We believe PSUs play an important role in the distribution of mutual fund products. Therefore, it is important to get them moving as they are used to selling bank products.”
Fund house officials said that they are, on their part, actively looking at engaging with and educating the bank employees about mutual fund products to help sell them at the bank branches. However, as of now, not all bank branches have dedicated personnel for the sale of MF products.