Sebi asks mutual funds to stop B30 commissions

Securities and Exchange Board of India or Sebi has asked mutual funds to keep the B-30 incentive structure on hold till fund houses put a system in place that addresses the concerns of Sebi. “While Sebi continues to be committed to financial inclusion incentive structure, the manner of implementation of various Sebi/AMFI directives in this regard by mutual funds revealed following inconsistencies/deficiencies,” Sebi said.

Sebi had permitted mutual funds an additional expense ratio of 30 basis points or 0.30% on new inflows (amounts up to Rs 2 lakh) from retail investors for incentivising mutual funds getting money from non-metro cities or B-30 cities and to energise the distribution network.

However, Sebi said the incentive structure was exploited by splitting of transactions, churning of investments, manner of calculation of B-30 incentives, including switch transactions for calculation of the 30 incentives, charging B-30 incentive only in specific schemes rather than across all schemes.

SEBI has also observed a lack of system-driven mechanism to check the misuse of incentive structure and has advised fund houses to ensure a system-driven mechanism to detect and prevent splitting, churning of investments and other misuses. Also, take action against wrongdoing, whether internal to the AMC or external in terms of mutual fund distributors.

However, Sebi has clarified that AMCs should continue to pay B-30 incentives on inflows in B30 cities already received earlier.

Sebi said financial inclusion is adversely impacted due to the misuse and lack of uniformity in practice of B-30 incentives. Sebi is also exploring other measures for financial inclusion to put in place an effective mechanism.