The Indian mutual fund industry has been grappling with various issues related to transparency, ethics, and investor protection. One of the key concerns has been the role of brokers, particularly those located in cities and towns beyond the top 30 (B30) cities in India. In a bid to address these concerns, the Securities and Exchange Board of India (SEBI) has decided to withhold brokerage payments to B30 brokers for mutual fund transactions.
SEBI vide a communication to AMFI dated 24th February 2023 has advised Mutual Funds to hold the B30 incentive structure in abeyance effective March 1, 2023.
The SEBI communication to AMFI highlighted certain inconsistencies/deficiencies in the methodology adopted for a charge of additional B30 expenses leading to potential misuse of the B30 incentivization structure.
SEBI had, through AMFI, advised AMCs to keep the B30 structure in abeyance till necessary systems and controls were implemented to curb misuse of the same and ensure uniformity in charging methodology. As of date, we await clarity on the matter from the SEBI.
There are a few AMCs such as PGIM & Invesco, that would release the commission withheld once they receive a confirmation from SEBI / AMFI that the same can be released.
While there may be some short-term challenges for small brokers, the move is expected to have long-term benefits for the industry as a whole. By encouraging better service standards and promoting investor protection, SEBI is working towards creating a more sustainable and trustworthy mutual fund industry in India.