Sebi's new expense charge regime to increase mutual fund penetration

Sebi permitted an additional 30 basis points of extra expenses to be charged to a mutual fund to incentivise distribution of such products in all cities

Markets regulator Sebi's decision to allow mutual fund houses to charge additional expenses from customers from beyond top 30 cities, as against 15 earlier will help in increasing penetration of such products, experts said.

"Sebi is now worried to develop the interiors of B-30 cities. So it augurs well for financial inclusion and availability of mutual fund investment products to the retail people," Quantum Mutual Fund MD and CEO Jimmy Patel said.

Echoing the view, Ashish Chauhan MD and CEO BSE, which runs mutual fund distribution platform -- BSE StAR MF, said that the move will help penetrations beyond 30 cities.

"The present effective B15 concept had indeed helped penetrations beyond 15 cities and it presently accounts for nearly 20 per cent of the industry's assets under management," he said.

Sebi, on Friday, permitted an additional 30 basis points of extra expenses to be charged to a mutual fund to incentivise distribution of such products in all cities except the top 30 as against cities beyond top 15 so far.

B30 along with investors education programmes will further the reach of MF distribution into smaller cities and towns including rural markets as there will be additional incentive for the same, Chauhan added.

The markets watchdog, in 2012, had allowed such TER (total expense ratio) for inflows from beyond top 15 cities (B15 cities) in order to increase penetration of mutual funds in such towns.

"Since more than five years have elapsed and on review, it is now decided that the additional TER of upto 30 basis points would be allowed for inflows from beyond top 30 cities instead of beyond top 15 cities," the Securities and Exchange Board of India (Sebi) said in a circular.

This would be applicable effect from April 1, 2018.

The TER is a percentage of a scheme's corpus that a mutual fund house charges towards expenses including administrative and management.

B15 cities are those which are beyond these top 15 cities - New Delhi (including NCR), Mumbai (including Thane and Navi Mumbai), Kolkata, Chennai, Bengaluru, Ahmedabad, Baroda, Chandigarh, Hyderabad, Jaipur, Kanpur, Lucknow, Panjim, Pune and Surat.