SEBI has incentivized fund houses to expand into 'B15' cities beyond the top 15 cities to increase penetration of mutual funds in rural areas. Most mutual funds are currently sold in urban areas, but SEBI allows higher fees if fund houses can increase inflows from smaller cities and rural regions. In response, many fund houses have revised their commission structures to pay higher commissions to distributors in smaller cities to encourage selling mutual funds in these less developed regions where infrastructure issues make distribution more difficult.

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
Most people living in urban areas think that mutual fund is a popular productand 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 industrybody Association ofMutual 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),postoffice deposits and insurance plans thatlead 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.
Additional incentives
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 least30% 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.
- See more at:
http://flame.org.in/KnowledgeCenter/HowSEBIsB15pushisboostingMFdistribution.aspx#sthash.hksbr8fG.dpuf