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Business News/ Market / Stock-market-news/  SBI Mutual Fund opens 51 branches across India in a single day
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SBI Mutual Fund opens 51 branches across India in a single day

All the new branches lie in the so-called beyond the top 15 (B15) cities

SBI Mutual Fund has assets under management of about Rs65,000 crore. Photo: Pradeep Gaur/MintPremium
SBI Mutual Fund has assets under management of about Rs65,000 crore. Photo: Pradeep Gaur/Mint

Mumbai: In a move aimed at boosting the penetration of mutual funds (MF) in the hinterland of India, SBI Funds Management Co. Ltd., the country’s sixth largest fund house, on Monday opened 51 new branches across the country.

The fund has assets under management of about Rs65,000 crore.

All the new branches lie in the so-called beyond the top 15 (B15) cities. In MF industry parlance, B15 is a town where inflows into the MF industry are less than what any of the top 15 (T15) cities get.

“Investors in B15 cities are usually not serviced by fund houses. But these investors need a physical interaction with a fund house’s office. She needs to be serviced and so needs to go to a place where her queries can be addressed. Besides, we also intend to reach out to investors in these towns, who have the appetite to look beyond traditional investment options like fixed deposits and small savings," said Dinesh Khara, managing director, SBI Funds Management Co. Ltd.

The MF’s move comes a year-and-a-half after the capital market regulator, Securities and Exchange Board of India (Sebi), incentivised the MF industry to sell MFs in B15 cities.

In September 2012, Sebi allowed fund houses to charge an additional 30 basis points (bps) in the total expense ratio if new inflows from B15 cities are at least 30% of gross new inflows in the scheme or 15% of the average assets under management, whichever is higher. A basis point is a hundredth of a percentage point.

After Sebi’s nudge, a number of fund houses revised their commission structure for distributors in B15 to incentivize them to get more people to invest in MFs.

But fund houses have so far stayed away from launching branches in these locations, as many feel running a branch is a costly affair. “We don’t see a problem in maintaining and running our branch network because we have worked out our math. But more importantly, penetration is important and we feel retail investors should be given a choice of financial products," added Khara.

Sebi chairman U.K. Sinha, who was present at a function to launch these branches, said that Sebi is closely monitoring the industry’s actions. He claimed that of the 1,505 branches that all fund houses put together have across India, 946 fall in B15 cities.

“Ever since September 2012 till December 2013, the MF industry opened up just 55 new branches in B15 towns. Although we encouraged fund houses to go beyond the top cities, the response till date hasn’t been very encouraging," he said.

As a result, inflows from B15 cities weren’t as encouraging as he had hoped, Sinha added.

Opening up new branches, therefore, is fine, but what about misselling? Since the fund house would be largely targeting investors who have not invested in MFs before, would they be sold the right product? And would investors be made aware of the risks?

“Although all products of SBI MF will be on offer for our customers, we have ensured that our staff is adequately trained to explain the risks of these products. Besides, we don’t need to sell all our schemes at once from the word go. We would, typically, start by offering our liquid schemes, fixed maturity plans and capital protection- oriented schemes to retail investors. Once the customer feels comfortable, we could sell equity schemes to them," said Arundhati Bhattacharya, chairman, State Bank of India, the MF’s sponsor.

To be sure, the fund house has chosen to open its own branches in addition to banking on the branch network of its parent bank, which itself is one of India’s largest MF distributors. “Opening up a branch is important as it serves not only our customers but also our distributors. The bank being a distributor itself cannot service and support other distributors beyond a point," said a senior official of the fund house present at the function who did want to be named.

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Published: 27 Jan 2014, 10:23 PM IST
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