SEBI has directed fund houses to charge the additional 30 bps applicable on B30 cities only on retail AUM.
However, till the time SEBI comes out with a definition on retail investors, industry can continue to charge additional TER on individual assets i.e. retail and HNI assets.
SEBI has further clarified that fund houses can incentivize their distributors through additional B30 commission only through trail model. So far, AMCs were allowed to pay additional upfront commission to B30 distributors.
In 2012, SEBI introduced the B15 cities regulation (modified to B30 cities in April 2018) to incentivise AMCs to increase mutual fund penetration beyond the top metros. According to experts, the idea was to compensate mutual funds on the additional cost required to capture and service clients from smaller towns. Generally, these costs tend to much higher in case of individual clients compared to institutions. In that vein the exclusion of institutions and corporates is in line with the spirit of the law.
Sunil Subramaniam, MD, Sundaram Mutual belives that this revised regulation will not have any impact on MFs as the majority of B30 assets come from individual investors. To put things in perspective, September 2018 AMFI report on T30 – B30 cities reveals that majority of the institutional clients come from T30 cities and only a small portion (5.96%) of the institutional assets come from B30 towns. An analysis of AMFI data shows that of the Rs. 3.57 lakh crore of B30 assets in September only Rs. 67,651 crore came from corporates, banks and FIIs while the rest Rs. 2.89 lakh crore came from retail investors and HNIs. The low institutional AUM indicates that the impact of excluding corporate investments from additional TER is likely to be limited.
