B-30 Incentive Returns: Mutual Funds Eye Growth, But Flow Gains Seen Limited | Savings and Investments News

Mutual fund

Mutual fund players have welcomed SEBI’s move to revive incentives for distributors sourcing first-time investors from beyond the top 30 cities (B-30). However, they believe the scheme is unlikely to spark a significant surge in flows, as this segment has already been expanding steadily even without such incentives.

The B-30 programme, introduced in 2012, was aimed at deepening mutual fund penetration in smaller towns by offering distributors additional commissions on inflows from these locations. Under the earlier framework, incentives were calculated as a percentage of total collections with no monetary ceiling, allowing large-ticket investments to generate hefty commissions.

That has now changed. Distributor Pravin Kulkarni notes, “Earlier there was no cap on commission earned. In the new scheme, it will be paid at the end of the year and capped at Rs 2,000 per unique investor. So it is extremely difficult to earn the same level of incentive as in the old scheme.” He added that the cap will curb the scope of mis-selling and misuse.

Kulkarni does not expect a dramatic impact on flows. “Investment growth did not slow much after the B-30 scheme was discontinued in February 2023. So I don’t expect a big boost now either. Still, the incentives may motivate distributors somewhat, even with the lower cap.” He also pointed out that most of his business came through client referrals, not commissions.

SEBI had scrapped the scheme in February 2023 citing misuse through application splitting and churning, even as B-30 assets had crossed Rs 7 lakh crore — nearly a quarter of industry AUM at the time.

The reintroduced version comes with tighter checks. Distributors will now receive 1% of the first application amount or the total first-year SIP investment, subject to a Rs 2,000 per investor cap, for inflows from new individual investors with fresh PANs in B-30 cities. Incentives will be processed at the industry level and tracked via PANs, ensuring no investor is claimed by multiple distributors.

“The previous version of B-30 was very different,” said Sachin Jain of Scripbox. “Earlier, incentives were a percentage of total collections without any cap. The new scheme offers a 1% incentive capped at Rs 2,000. This was set thoughtfully to balance industry concerns about acquisition costs with the need to encourage flows from smaller towns.”

Deepak Shenoy, CEO of CapitalMind Mutual Fund, agreed that the new framework reduces abuse while retaining growth prospects. “The Rs 2,000 cap is too small to incentivize fraud, so a lot of past misuse will go away. It won’t matter much in urban areas, but it could still encourage fresh participation in B-30 markets, which are already growing well. This looks like a controlled way to keep that momentum going.”

Kulkarni, however, warned that industry-level tracking could heighten competition. “There will be tighter competition for acquiring new clients. Once a folio is created for a new investor, that person is no longer available as a ‘unique’ client to others.”

As of now, B-30 assets account for about 18% of the industry’s total AUM, with equity schemes dominating inflows.