Even before the Rs 21 trillion mutual fund (MF) industry could digest the higher tax burden of the Union Budget, the industry has received another blow. Market regulator Securities and Exchange Board of India (Sebi) has slashed the sops it allows for the industry in the form of additional commissions.
Sebi has removed the additional total expense ratio (TER) of 30 basis points (bps) on incremental flows from so-called beyond 15 cities (B15). Instead, the regulator said the extra expenses will now be allowed from flows coming from beyond 30 cities (B30).
“The additional TER for inflows from B15 cities was allowed with an objective to increase penetration of mutual funds. Since more than five years have elapsed and on review, it is now decided that the additional TER of up to 30 basis points would be allowed for inflows from beyond top 30 cities instead of beyond top 15 cities,” Sebi said in a circular.
The move could pose a challenge for the industry as the assets garnered from B30 cities currently account for only a minuscule portion of the overall industry assets.
The new rules will be applicable from April 1.
Some of the cities which will lose incentives include Raipur, Bhopal, Ranchi, Varanasi, Jamshedpur, Cochin, Nashik, Rajkot, Patna, Ludhiana, Guwahati, Coimbatore, Indore, Panaji and Bhubaneshwar.
Among the top 15 cities are Mumbai, Delhi, Chennai, Kolkata, Bangalore, Pune, Ahmedabad, Hyderabad, Baroda, Jaipur, Surat, Chandigarh, Lucknow, Kanpur and Nagpur.
Removing B-15 incentives was a part of active discussions in recent years. Sector officials say they are relieved that it is not removed altogether. Smaller cities and towns have shown a substantial rise in inflows into mutual funds over the last few years.
Sebi allows higher commissions to distributors if new inflows from smaller centres are at least 30 per cent of gross new inflows in the scheme or 15 per cent of the average assets under management (year to date) of the scheme, whichever is higher.
Separately, Sebi has also carried that only MF schemes that charge exit loads will be allowed to charge extra 20 basis points additional expenses.