Most people living in urban areas think that mutual fund is a popular product and is sold in all parts of the country. However, this is not true. Mutual funds as financial products should be available in each region of the country. But, mutual funds are mostly sold in urban areas and it is difficult to find distributors selling mutual funds in the semi-urban and rural regions especially the remote areas.
In order to attract penetration from rural areas, market regulator Securities and Exchange Board of India has incentivised fund houses to go to 'B15' cities.
The term 'T15' stands for top 15 cities, while B15 means beyond (top) 15 cities.
The industry body Association of Mutual Funds in India (AMFI) has analysed inflows of fund houses, geography-wise, and has classified cities as T15 and B15 in the order of inflows that come from these places.
Usually it has been observed that fund houses have been hesitant to penetrate beyond top 15 cities.
According to Vivek Chaurasia, senior research analyst, PersonalFN, It is not easy for mutual funds to stand along bank FDs (fixed deposits), post office deposits and insurance plans that lead as a primary saving product in rural and semi-rural regions. MFs still require a big push especially in semi-urban and rural regions—which are currently dominated by banks, post offices and big insurers.
Also due to infrastructure constraints, fund houses are finding it difficult to penetrate in rural areas. In smaller cities, the awareness about MF schemes is less. There have been cases of mis-selling due to which people in smaller cities and rural areas are unwilling to invest in MFs.
The average ticket size of investment in these cities is around Rs. 50,000 and a distributor has to travel around 50km to reach investors. Thus, it becomes difficult to sell MF schemes.
Fund houses with corpus size of less than Rs.100 billion have reported just about 10% of their assets that come from B15 cities on an average, however there are some exceptions here as well.
In 2012, SEBI allowed fund houses to charge an additional 30 basis points (bps) in the total expense ratio if new inflows from B15 cities are at least 30% of gross new inflows in the scheme or 15% of the average assets under management, whichever is higher. 100 bps is equivalent to 1%.
After SEBI’s push, many fund houses have revised their commission structure for distributors in B15 to incentivise them to get more people to invest in MFs. High commission is paid mainly for equity-oriented funds and monthly income plans where the fund houses feels it can earn enough for itself, before passing out the rest to distributor as commission.
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