“B30 cities” in the context of mutual funds in India refer to the cities that are ranked beyond the top 30 (T30) cities in terms of their assets under management (AUM). The classification into T30 and B30 cities is part of a broader categorization used by the Association of Mutual Funds in India (AMFI) to segment the Indian market for mutual funds. Contrary to popular belief, B30 is just not 30 cities.

1. T30 Cities: These are the top 30 cities in India, which are generally the most urbanized and economically developed. They have higher levels of income and awareness about mutual fund investments, leading to higher AUM.
2. B30 Cities: This term stands for “Beyond 30” cities, which includes all cities and towns in India that are not part of the T30 category. These are typically smaller cities and towns with potentially less exposure to various investment options, including mutual funds.

As of January 2023, B30 cities account for only 17 per cent of the total assets under management (AUM) of the mutual fund industry. The geographical break-up can be seen in the chart.

List of B30 cities from AMFI

The updated list of B30 cities in AMFI India as of March 31, 2023, is as follows:

1. Ajmer
2. Aligarh
3. Amravati
4. Amritsar
5. Aurangabad
6. Bareilly
7. Baroda
8. Bathinda
9. Belgaum
10. Bellary
11. Bhagalpur
12. Bhilai
13. Bhopal
14. Bhubaneshwar
15. Bijapur
16. Bilaspur
17. Bokaro
18. Chandigarh
19. Coimbatore
20. Cuttack
21. Davangere
22. Dehradun
23. Dhanbad
24. Durgapur
25. Faridabad
26. Ghaziabad
27. Gorakhpur
28. Gulbarga
29. Guntur
30. Gurgaon
31. Gwalior
32. Hubli
33. Indore
34. Jabalpur
35. Jaipur
36. Jalandhar
37. Jamshedpur
38. Jammu
39. Jodhpur
40. Kakinada
41. Kanpur
42. Karnal
43. Kolhapur
44. Kota
45. Kurnool
46. Ludhiana
47. Madurai
48. Mangalore
49. Meerut
50. Moradabad
51. Muzaffarpur
52. Nagpur
53. Nasik
54. Navi Mumbai
55. Nellore
56. Noida
57. Patna
58. Pondicherry
59. Pune
60. Raipur
61. Rajkot
62. Ranchi
63. Rohtak
64. Salem
65. Sangli
66. Shimoga
67. Siliguri
68. Solapur
69. Srinagar
70. Surat
71. Thanjavur
72. Tiruchirappalli
73. Tirupati
74. Tirunelveli
75. Udaipur
76. Ujjain
77. Vadodara
78. Varanasi
79. Vijayawada
80. Visakhapatnam
81. Warangal and so on

This list is based on the most recent data available from AMFI India. However, it is important to note that the list is subject to change, and it is always best to check with AMFI India for the most up-to-date information.

The significance of distinguishing between T30 and B30 cities lies in understanding the penetration and growth potential of mutual funds in different parts of India. B30 cities are often targeted for increased mutual fund awareness and investment penetration, as they represent a significant portion of India’s population and have been showing growing interest in mutual fund investments.

This classification also helps in formulating tailored marketing strategies and investment products suitable for these markets, considering the varying levels of financial literacy, income levels, and investment behavior between T30 and B30 cities.

What is B30 cities’ Incentive Commission?

The B30 (Beyond 30) incentive in the context of mutual funds in India refers to an initiative designed to encourage the distribution and growth of mutual fund investments in smaller cities and towns, which are categorized as B30 cities. These are cities that rank beyond the top 30 cities in India in terms of assets under management (AUM).

The key points of the B30 incentive are:

1. Incentivizing Distributors: Asset management companies (AMCs) offer additional commission to distributors for garnering investments from B30 cities. SEBI allowed fund houses to charge an additional expense ratio of 30 basis points (0.30 per cent) on new inflows of up to Rs 2 lakh from B30 cities. This incentive aims to motivate distributors to expand their outreach and promote mutual fund investments in these areas.
2. Expanding Market Reach: The rationale behind the B30 incentive is to diversify the investor base of mutual funds in India by tapping into markets that are not as saturated as the top 30 cities (T30). It helps in increasing the penetration of mutual funds across the country, especially in regions where awareness and availability of such investment products are relatively low.
3. Regulatory Oversight: The Securities and Exchange Board of India (SEBI), which regulates mutual funds in India, oversees the implementation of these incentives. SEBI ensures that these incentives are structured in a way that benefits the investors and promotes healthy market growth.
4. Impact on Investment Patterns: The B30 incentive has the potential to influence investment patterns in mutual funds, encouraging a more geographically diverse investor base. This can lead to more stable and widespread growth in the mutual fund sector.
5. Investor Awareness Programs: Part of the B30 initiative often involves conducting investor education and awareness programs in these cities, which is crucial for attracting first-time investors and building a culture of investment in mutual funds.

Discontinuation of B30 incentives by SEBI

In a circular dated 7th march 2023, SEBI has directed AMFI and all the mutual fund houses to stop B30 incentives. Ciruclar can be seen below.

The discontinuation of B30 incentives by the Securities and Exchange Board of India (SEBI) in February 2023 was primarily due to inconsistencies in the implementation of B30 norms by Asset Management Companies (AMCs) and distributors. SEBI’s decision to temporarily bar fund houses from charging additional expenses in lieu of B30 retail assets was aimed at addressing these issues and ensuring a fair and transparent implementation of the incentive scheme.

The specific issues identified by SEBI included:

1. Inconsistencies in Calculating B30 Incentives: Some AMCs were found to be calculating B30 expenses on a daily basis but reconciling the accrued expenses on a weekly, monthly, quarterly, or annual basis, which was not in line with the SEBI guidance and AMFI best practices guidelines. This inconsistency had a significant impact on the Net Asset Values (NAVs) of funds.
2. Inclusion of Switch Transactions to Charge B30 Expenses: SEBI observed that a few AMCs considered switch transactions of up to Rs. 2 lakh to charge B30 expenses. This practice was not in the spirit of the regulations as SEBI specified that B30 expenses could only be charged for new inflows.
3. Arbitrary Charging of B30 Expenses: There were instances where AMCs charged B30 expenses based on their discretion, either not charging them despite B30 inflows in some schemes or charging them for a specific period. This was deemed arbitrary and could lead to anti-competitive practices.
4. Splitting of Transactions and Churning of Investments: SEBI found instances where Mutual Fund Distributors (MFDs) split transactions to keep investment amounts below Rs. 2 lakh to earn higher B30 incentives. There were also cases of investment churning, where MFDs made redemption requests on behalf of clients and reinvested in the same scheme after a short period to avail B30 incentives.

What is the latest update about B30 incentives?

B30 incentives might be back but not as lucrative as earlier. In response to the findings mentioned above, in May 2023 SEBI proposed a new incentive structure for MFDs to bring in new investors from B30 cities and women investors, based on their Permanent Account Number (PAN). The proposed structure included a flat fee of 1% of the first application amount or the amount of Systematic Investment Plan (SIP) committed, subject to a maximum incentive of Rs. 2000. Additionally, SEBI suggested allowing AMCs to consider paying a higher percentage of commission for inflows from B30 cities compared to inflows from T30 cities

This may prove detrimental as B30 investors rely heavily on MFDs to guide them with their mutual fund distribution and now there is no extra incentive for the MFD to help individual investors from B30 cities.

The analysis of the industry data from MFDEx, which covers 98% of the industry’s Assets Under Management (AUM), provides significant insights into the distribution of B30 mutual fund assets as of September 2023. Here’s a summary of the key findings:

1. Prominent Role of Individual MFDs (Mutual Fund Distributors): Individual MFDs are a crucial channel for B30 investors, managing 37% of the total B30 AUM. They command Rs. 3.09 lakh crore of the total B30 AUM of Rs. 8.40 lakh crore.
2. Influence of National Distributors (NDs): When considering NDs, especially those with a sub-broking model, the share of individual MFDs in B30 AUM rises to over 50%. NDs themselves account for 14% of the B30 AUM, equating to Rs. 1.21 lakh crore.
3. Dominance of Regular Plans: Approximately 75% of the total B30 assets come from regular plans. This indicates a heavy reliance on intermediaries for mutual fund investments in B30 cities.
4. Banks as Key Distributors: Banks play a significant role in the B30 AUM distribution, with PSU banks holding a major share of 13% (Rs. 1.11 lakh crore) and private banks managing around 7% (close to Rs. 60,000 crore).
5. Growth of Direct Plans and RIAs: Direct plans account for 25% of the total B30 assets, with Registered Investment Advisors (RIAs) contributing 6%. This shows a growing trend of direct investment and professional advice seeking in B30 cities.

Distribution Channel Breakdown (AUM in Rs. crore and % of Total AUM):

Certainly! Here’s the table representing the distribution of B30 mutual fund assets across various distributor channels, based on the data as of September 2023:

Distributor Channels	AUM in Rs. Crore	% of Total AUM
Individual MFDs	308,645	37%
Direct Plans	157,498	19%
National Distributors	121,196	14%
PSU Banks	110,930	13%
Private Banks	59,786	7%
Registered Investment Advisors (RIAs)	52,467	6%
Others	21,365	3%
Regional Rural Banks	8,218	1%
Total	840,105	100%

Source: MFDEx; Data as of September 2023.

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