SEBI introduces revised distributor incentives to boost MF penetration among new B-30 investors and women

To prevent overlap and misuse, SEBI clarified that distributors will not be permitted to claim more than one incentive for the same investor or investment.

The Securities and Exchange Board of India (SEBI) has introduced a new incentive structure for distributors, with a particular focus on first-time investors in smaller cities and women across the country. The regulator announced this through a circular issued on Thursday, revising the earlier framework that had governed incentives for investments originating from beyond the top 30, or B-30, cities. The earlier rule, outlined under Regulation 52(6A)(b) of the SEBI (Mutual Funds) Regulations, 1996, was formally removed via a gazette notification dated October 31, 2025, following concerns raised by industry participants about potential misuse and inconsistencies in implementation.

The regulator explained that the revised framework is designed not only to correct the weaknesses of the earlier model but also to reorient the focus towards a broader goal of financial inclusion. The new system will classify investors solely on the basis of new PAN registrations at the mutual fund industry level, ensuring that the incentives are reserved for genuine first-time investors. According to the circular, distributors will now qualify for additional commissions when onboarding new individual investors from B-30 cities and new women investors, regardless of whether they reside within or outside the top 30 cities. This is expected to help expand the reach of mutual funds in regions where financial penetration and awareness remain relatively low, while also addressing the gender imbalance in investment participation.

Under the updated guidelines, asset management companies will compensate distributors using funds sourced from the two basis points that AMCs are already mandated to allocate each year for investor education and financial inclusion initiatives. For lump-sum investments, the additional commission will be calculated at one percent of the first application amount, capped at Rs 2,000, and payable only if the investor remains invested for a minimum of one year. For systematic investment plans, the commission will amount to one percent of the total contributions made during the first year, again capped at Rs 2,000. These benefits will be paid in addition to the existing trail commissions that distributors normally receive.

To prevent overlap and misuse, SEBI clarified that distributors will not be permitted to claim more than one incentive for the same investor or investment. However, they may receive incentives for onboarding new women investors from top-30 cities in cases where the B-30 incentive has not been claimed for that investor. This clause is intended to encourage more concerted efforts to reach women investors specifically, without duplicating benefits.

The circular added that while the payment is mandatory for most schemes, it will not apply to exchange traded funds, domestic fund-of-funds with more than 80 percent of assets invested in other domestic funds, and categories with a duration requirement of less than one year, which include overnight, liquid, ultra-short duration and low-duration funds. The exclusion of these schemes aligns with SEBI’s aim to incentivize long-term, meaningful investor participation rather than short-term or institutional-driven flows.

To ensure uniform adoption, SEBI has instructed the Association of Mutual Funds in India (AMFI) to develop and publish detailed implementation standards within thirty days. The regulator further clarified that any changes made to scheme offer documents to reflect the revised incentive structure will not be categorized as fundamental attribute changes, sparing mutual funds from more complex compliance procedures. The new framework will come into force on February 1, 2026.

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