MF Investments Rise From Smaller Cities Towns to 14.18%

AUM contribution tops 14%, retail equity folios near 2 crore mark of B15 cities

It is not only wealthy & urban investors who are intrigued by the share market rally. Investments into mutual funds (MFs) by investors beyond the top 15 cities  ‘B15’ (that is smaller cities & towns) in sector parlance are seeing huge progress with India's benchmark indices scaling new highs.

The contribution of B-15 centres to the segment's overall assets under management (AUM) rose to 14.18% in September, 2014 an increase of more than 1% compared to December 2013.

In other words, of every Rs. 1,00,000 of assets, Rs. 14,000 has been contributed from smaller cities & towns. The MF sector's size is about Rs 10 lakh crore.

To boost participation from the non-traditional centres, the Securities and Exchange Board of India (SEBI had in September 2012 allowed mutual fund houses to charge an additional 0.3% in total expense ratio if fresh inflows from B -15 places were 30% of gross inflows.

"In absolute terms, asset growth in B15 cities is extremely fast. The 0.3% bps allowance was a well-conceived plan, which has worked. More distributors are getting empanelled in these regions, a good sign,” said Mr. Milind Barve, MD of India's largest fund house, HDFC MF.

Those in the sector say the SEBI initiatives like higher compensation & investor awareness programmes have begun to yield results.

Mr. H.N. Sinor, Chief Cxecutive, Association of Mutual Funds in India (AMFI), said: "With what was started by Sebi about a year and a half before for B-15, we are now seeing considerable movement on retail size in B-15 towns. The progress between March 2013 & September 2014.

“There is consistent improvement. What we have seen is that retail investment in equity mutual funds and balanced funds and equity-linked savings schemes (ELSS) has moved from Rs. 65,000 crore to Rs. 1 lakh crore of AUM, a one-third rise in B-15 assets”

Further, the rise in retail folios (accounts) from smaller towns has been at a faster clip. In these 18 months, there has been an addition of 1.5 million new retail folios in the equity segment in B -15 cities. Now, the total number of retail equity folios here is 1.98 crore.

The folio numbers are encouraging, those in the sector say, given the poor penetration of equity products across India. "The average size of investment in B -15 cities stands at nearly Rs. 50,000," said Mr. Sinor.

The industry executives feel the next phase of rise in AUM is slated to come from the smaller cities & towns where there is huge untapped potential. According to them awareness about MF products as investment has to be a continuous process.

The industry body, AMFI, has already stepped up & is using TV commercials as well as radio advertisements to reach out to more & more number of potential investors.

Under the district adoption programme, many fund houses are taking care of anywhere between 5 and 15 districts each, involving awareness programmes & engaging and empowering distributors.

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