AMFI Suspends B30 Incentives Temporarily till Mutual Funds Revamp the Systems

AMFI has temporarily barred mutual fund houses from paying additional incentives on new inflows from B-30 locations. Earlier, the market regulator SEBI permitted mutual fund houses an additional expense ratio of 30 bps on new inflows (up to Rs 2 lakh) from retail investors to encourage mutual funds to attract capital from B-30 locations.

In a letter to AMFI on February 24, 2023, the market regulator SEBI mentioned various discrepancies in implementing its directives concerning charging an additional expense ratio of 30 basis points (bps) to help boost the penetration of mutual funds and investors’ interest in B-30 locations.

Further, the regulator also pointed out that the fund houses did a poor job of implementing their B-30 incentive system. It found various flaws and inconsistencies, including "splitting of transactions," "churning of investments," and the way incentives were calculated, including switch transactions for B-30 incentive computation, and charging B-30 incentive only in certain schemes rather than all schemes.

SEBI has requested that the AMCs suspend the B-30 incentive structure in order to address its concerns. AMFI made it clear that the temporary suspension will be lifted as soon as fund houses put in place a system to detect and monitor distributors' and AMCs' misuse of B30 incentives.

The regulator has also advised the industry body to revert to SEBI after ascertaining the compliance by the AMCs, within one month from the date of its letter.

Meanwhile, AMCs can continue to make the payment of the B-30 incentive on inflows from B-30 cities already received prior to the letter.