Here's why SEBI is trying to boost MF AUM from B30 cities

SEBI Chairman Ajay Tyagi at a recent industry event directed mutual fund players to increase penetration in B30 cities.

In April 2018, to encourage large inflows from beyond (B30) cities, regulator had allowed additional 30 basis expense ratio incentive to distributors.

Mutual funds charge up to 2.5 percent on equity funds on an average. So, mutual funds or distributors who got inflows from B30 cities were allowed to charge an additional 30 basis points.

An expense ratio is the amount companies charge investors to manage a mutual fund scheme.

SEBI's main focus area has been to increase the penetration of mutual funds from smaller towns. As Tyagi has indicated at several industry events, there is a need to bring long-term savings from smaller towns.

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The 44-player mutual fund industry has achieved good growth in B15 markets in recent years. The share of B15 AUM has increased from 12.7 percent in 2013 to 17.7 percent in 2018.

Analysis of data shows that assets from B30 cities increased by Rs 42,368 crore, a growth of 13 percent, between April 2018 and March 2019.

But still, the regulator does not seem to be pleased as, since March 2019, the contribution in the assets of B30 cities has stagnated at 15 percent of the total AUM.

As of August 2019, 15 percent or Rs 3.99 lakh crore of industry’s assets came from B30 locations. Of the Rs 3.99 lakh, 64 percent came in equity funds.

SEBI has taken a few initiatives like payment through e-wallet, instant liquidity, standardisation of schemes and introduction of Total Return Index for benchmarking schemes to help improve investor experience.

Why are B30 cities important?

Financialisation of savings is more acutely needed in smaller cities. As per certain surveys, the top 10 cities have more financial assets in percentage, whereas smaller town families have more percentage in gold and real estate of their total savings.

The most liquid assets being financial assets, there is a much larger scope to expand in small towns than what is covered by the MF industry so far.