SEBI has reviewed the additional expenses that an AMC can charge to the TER (Total Expense Ratio) if the investments are sourced from cities (B-15) which are beyond the top cities (T-15) effective from 1st April 2018.
Earlier, AMCs were allowed to charge an additional 0.30% to the expense ratio of regular plans (and payout to distributors as commisions) for investments beyond T-15 cities but now they have revised the cities list to T-30 and B-30. This means that the cities which were listed under B-15 earlier are now considered under T-30 and the remaining cities beyond this would be considered under B-30. Apart from this, SEBI has also mentioned that the additional expenses of 0.30% will be added to the expense ratio of a regular plan only as per the conditions mentioned below :
a) If the net inflows from beyond top 30 (B30) cities are at least 30% of gross new inflows in the scheme.
OR
b) If the net inflows from beyond top 30 (B30) cities are at least 15% of the average assets under management (year to date) of the scheme, whichever is higher.
Below are the links to the SEBI circular as well as the geographic distribution of AUMs across different cities.
As a result of this recent amendment, distributors will be less incentivised if their client has invested from the new T-30. Earlier, if a client was from Coimbatore ( previously B-15, now T-30) then the distributor would have received a higher commision compared to a client who had invested in the same fund from Mumbai. Since the expense ratio is a fund specific cost and not client specific, this move will help investors.