SEBI chairman nudges MFs for rural foray

The Securities and Exchange Board of India (SEBI) has asked the mutual fund industry to end its urban focus and spread out to non-metro areas of the country.

SEBI chairman U K Sinha on Wednesday warned asset management companies of tough regulatory action against AMCs that fail to reach out to rural ans semi-urban markets.

''We have given very reasonable incentives to the AMCs for going beyond the top 15 cities,'' Sinha said at a CII-organised MF summit in Mumbai. ''I am sure that in the new MF policy we are going to have disincentives for those who do not meet this requirement.''

With the top five cities accounting for 74 per cent of the assets under management of the mutual fund industry and the remaining 26 per cent distributed among other cities, the Indian mutual fund industry has been an urban business model since its beginnings.

Sinha said the market regulator has provided enough incentives to mutual funds for rural expansion and the industry is lax in spreading out to rural markets, adding that even in the cities and major towns where AMCs have offices, the numbers add up a mere 1,600 branches, a poor number compared to other financial services industry players.

''We have given incentives, very reasonable ones, to asset management companies for going beyond top 15 cities. I am sure that in the new mutual fund policy, we are going to have disincentives for those who do not meet this requirement,'' said Sinha. ''We need some sort of regulatory disincentive to meet larger legislative intent.''

He said the business of MFs is also hampered by the lack of an efficient distribution network. ''In the current scenario, the industry needs willingness from asset management companies to invest more in the distributor community,'' Sinha quoted from a PWC report.

SEBI has, meanwhile, set up a committee under former SBI chairman Janki Ballabh to advise the board on ways to push the MF industry into the rural and semi-urban markets. The committee is expected to submit its report in the next 2-3 months, Sinha said.

Also, the top 10 AMCs in the country account for a major part of the mutual fund business in the country, a trend that has been observed over the [ast five years. Obviously, Sinha said, ther is no real competition nor is their a willingness to expand markets to newer areas.

Sinha also said retail participation in mutual fund schemes has declined to 23 per cent from 28 per cent in 2011. This, he said, applied to the various MF portfolios as well.

He suggested that if an asset managemnt company is not too keen to focus on retail participation, it should think of venturing into other businesses or starting an investment fund for institutional investors.