The mutual fund industry has not been able to increase its reach effective into the market beyond top 15 cities even after a run of an incentive scheme for over two years.

According to a Value Research report, published on Wednesday at the Mutual Fund Summit here, the SEBI incentives (announced in September 2012) have only increased mutual fund folios.

It said: “the increase in mutual fund folios is an ominous sign, which is also due to the regulatory push to AMC to expand operation beyond the top 15 cities.” SEBI had allowed the fund houses to charge an extra load of 30 basis points from existing schemes subject to meeting certain conditions.

The fund houses have been paying additional commission to source applications from these new locations. However, the impact has not been significant so far.

“Despite constant endeavour of the regulator to increase penetration of mutual fund products beyond top 15 cities, the AUM composition has only marginally changed since SEBI directive on additional TER (total expense ratio)… Contribution from B-15 cities has not changed much in the last two years. Drivers such as lack of financial education and awareness, limited distribution network, cultural bias towards physical assets are some of the key impediments to growth in B-15 cities,” the report said.

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