All NRI investments in mutual funds are considered under T15

All NRI investments in mutual funds are considered under T15

Two years ago, mutual fund (MF) houses started to incentivize distributors from smaller towns with extra commissions to attract more inflows. The idea was to promote MFs in non-metro areas as well, and that MFs, as an investment vehicle, should not just be available in large towns or to urban dwellers. Therefore, based on inflows, cities are classified into two categories—top-15 (T15) and beyond the top 15 (B15). But if the investor is a non-resident Indian (NRI), she is automatically considered a T15 investor, even if her address falls in a B15 area.

WHAT'S THE LOGIC?

To understand why an NRI's investment is meant to be location-agnostic when it comes to remunerating her distributor, we need to understand the purpose of a B15 commission. MFs as an investment instrument have not spread much. Around 80% of total MF inflows across India have come from the large metros such as Mumbai, Delhi, Ahmedabad and Bangalore.

Therefore, the industry and the capital market regulator felt that the reach of MFs needed to be expanded, and that people from non-metro locations should be nudged to look at MFs, instead of allocating their assets in traditional instruments such as postal savings and bank fixed deposits.

Hence, it was decided that extra commission be given to a B15 distributor to incentivize her to attract more inflows. For instance, a large equity fund from one of India's biggest fund houses pays 1.35% in the first year to distributors of T15 cities and 2.35% to distributors in B15 cities. To the bigger T15 distributors, it pays 1.50% in the first year and to the bigger B15 ones, 2.75%.

But NRI investors are classified under T15, irrespective of whether they stay in a big city or a small city. This is done based on the assumption that their income is high. Such a classification, however, does not take into consideration the fact that some NRIs hold blue-collared jobs.

For residents, it is assumed that those coming from non-metros may not be as financially literate as metro-based investors. Ideally, the same logic should apply to NRI investors as well—it should be assumed that those with white-collar jobs are more financially aware than those with blue-collar jobs. If this is done, then investments from blue-collar NRIs should attract B15 commission. Why classify the blue-collared NRI as a T15 investment, when she, too, may need financial inclusion?

CAN WE MAKE A DISTINCTION?

MF industry participants and experts say that even those NRIs who hold white-collared jobs such as that of a chartered accountant or an engineer may not be well versed in financial matters. Since it's impossible to decipher the financial know-how of an NRI every time she invests, it has been decided to put all NRI investments under the T15 category. Remember: the thinking here is more to do with the understanding that an NRI's salary is typically more than the average Indian and hence the general purpose of financial inclusion may not really imply.


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