B30/T30 incentive framework, Indian mutual funds

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The B30/T30 incentive framework is the SEBI-mandated mechanism that permits mutual fund asset management companies (AMCs) to charge an additional component of the Total Expense Ratio (TER) on inflows sourced from cities and towns beyond the 30 most industrially and financially developed urban centres in India (the “T30” or top 30 cities), with the incremental revenue earmarked for additional distributor commissions to encourage geographic penetration into smaller cities (the “B30” or beyond 30 cities). The framework was introduced in its current form through SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/137 dated 22 October 2018 (effective 1 April 2019), building on earlier B15/T15 provisions. It is anchored in Regulation 52 of the SEBI (Mutual Funds) Regulations, 1996 and administered by the SEBI Investment Management Department.

Policy rationale

As of 2012, more than 85 per cent of India’s mutual fund assets under management (AUM) was concentrated in the five largest cities, Mumbai, Delhi (NCR), Bengaluru, Chennai, and Kolkata. Penetration in smaller cities and rural areas was negligible, reflecting both low financial literacy and the economic disincentive for distributors to service lower-ticket investors in geographically dispersed markets.

SEBI identified that the commission structure under the existing TER framework did not provide sufficient economic incentive for distributors to expand beyond urban centres. The B30/T30 (earlier B15/T15) mechanism addressed this by creating an explicit financial incentive: higher permissible TER on B30 inflows, which AMCs pass through to distributors as higher commission.

Historical evolution

B15/T15 phase (2012–2019)

SEBI circular dated 13 September 2012 introduced the original framework under the label “B15” (beyond 15 cities) versus “T15” (top 15 cities):

  • AMCs were permitted to charge up to an additional 30 basis points (0.30%) on the daily net assets of schemes if they secured at least 30% of new inflows from B15 cities.
  • The additional TER was required to be distributed as additional commission to distributors sourcing B15 inflows.
  • AMCs were required to disclose B15/T15 inflows in their AMFI monthly data submissions.

Revision to B30/T30 and new cap (2018)

The 2018 TER circular replaced B15/T15 with B30/T30 and significantly tightened the additional TER:

  • The list of cities included in the “top 30” was expanded from 15 to 30, reflecting urbanisation trends.
  • The maximum additional TER was reduced from 0.30% to 0.05% of daily net assets.
  • The condition was changed: the additional 0.05% is charged on the daily net assets of the scheme only if the AMC’s B30 inflows in the previous month exceeded 15% of total gross inflows.
  • The additional TER must be distributed as extra distributor commission for B30 inflows; it cannot be retained by the AMC.

AMFI list of T30 cities

AMFI publishes and periodically updates the list of T30 cities. As of the latest update, T30 cities include: Mumbai, Pune, Delhi/NCR, Bengaluru, Hyderabad, Chennai, Kolkata, Ahmedabad, Jaipur, Lucknow, Chandigarh, Surat, Baroda, Indore, Bhopal, Nagpur, Coimbatore, Kochi, Visakhapatnam, Nashik, Mangaluru, Rajkot, Madurai, Patna, Bhubaneswar, Ludhiana, Thiruvananthapuram, Agra, Varanasi, and Kanpur (the exact list is subject to AMFI updates). All other cities, towns, and semi-urban/rural areas are classified as B30.

Operational mechanism

Investor identification

The investor’s city is determined by the “first holder’s bank account address” or “PIN code of the investor’s address” at the time of subscription. AMFI issues guidance on how AMCs and registrars (CAMS, KFintech) should classify investor city codes. PIN code classification to T30/B30 is maintained in a master table updated periodically.

Qualification condition

Each month, the AMC checks whether its B30 gross inflows in the preceding month exceeded 15% of total gross inflows. If yes, the AMC may charge the additional 0.05% TER on daily net assets for that month. If not, the additional charge is not permissible that month.

Pass-through to distributors

The incremental revenue from the additional TER must be distributed as additional commission to distributors who sourced the B30 inflows. The AMC tracks distributor-wise B30 inflows and allocates the additional commission accordingly.

Direct Plan exemption

The additional B30 TER is charged only on Regular Plan assets. Direct Plan (no-distributor) investors do not bear this charge, consistent with the Direct Plan framework (see TER regulation and slabs).

Disclosure requirements

AMCs must:

  • Disclose B30 versus T30 inflow data in the monthly scheme-wise data submitted to AMFI.
  • Disclose whether the additional B30 TER is being charged in each scheme’s daily TER publication on the AMFI website.
  • Include B30 TER eligibility in the SID and KIM.

AMFI publishes consolidated B30/T30 industry inflow data monthly, enabling SEBI to track geographic penetration trends.

Impact on industry penetration

Since the B15/T15 mechanism’s introduction in 2012 and strengthening via B30/T30 in 2019, the share of B30 cities in total mutual fund AUM has grown from under 10% (2012) to approximately 18–20% (2024). Folios from B30 cities grew faster than T30 folios from 2019 to 2024. However, critics note that the growth has been concentrated in the larger B30 towns (Tier-2 cities) rather than in truly semi-urban or rural areas.

The framework also spurred growth of the Independent Financial Adviser (IFA) channel in Tier-2 and Tier-3 cities, with AMFI ARN-holder data showing a disproportionate increase in new ARN registrations from B30 PIN codes post-2019.

Criticisms and limitations

  • Leakage risk: Some distributors have been found to register investor addresses in B30 cities even when the investor is based in a T30 city, to claim the additional commission. AMFI and AMCs are required to audit PIN code data periodically.
  • Urban bias within B30: The majority of B30 inflows originate from Tier-2 cities such as Surat, Jaipur, and Indore, not from genuinely rural areas where financial inclusion is most needed.
  • Declining incentive value: The reduction from 0.30% to 0.05% in 2019 significantly reduced the economic pull of the mechanism for smaller distributors with low AUM.
  • Passive fund exclusion: ETFs and index funds, which have lower TER headroom, cannot practically offer the B30 incentive commission.

See also

References

  1. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2018/137, 22 October 2018, TER revision including B30/T30.
  2. SEBI (Mutual Funds) Regulations, 1996, Regulation 52.
  3. SEBI Circular dated 13 September 2012, B15/T15 introduction.
  4. AMFI, “City classification for B30/T30”, amfiindia.com.
  5. SEBI Master Circular SEBI/HO/IMD/IMD-PoD-1/P/CIR/2024/137, 27 May 2024.

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