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Garnering 30% assets from smaller cities a tough task, say MFs

Chandan Kishore Kant  |  Mumbai 

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The permission to charge an additional 30 basis points (bps) as total expense ratio (TER) on sales beyond the top 15 cities may look attractive, but mutual fund industry executives have taken it with a pinch of salt.

“It’s an uphill task which demands concerted and sustained efforts,” say officials.

In its statement, the Securities and Exchange Board of India (Sebi) had said: “(asset management companies) will be able to charge 30 bps if the new inflows from these cities/ towns are minimum 30 per cent of the total inflows. In case of lesser inflows the proportionate amount will be allowed as additional TER.”
 

HOW THEY STACK UP
AUM by Geography - Consolidated data for MF Industry as on June 30, 2012

Rank Locations % of AUM
1 Mumbai 44.48
2 Delhi 13.76
3 Bangalore 5.43
4 Kolkata 5.33
5 Chennai 4.66
6 Pune 3.45
7 Ahmedabad 3.18
8 Hyderabad 2.13
9 Panaji 0.85
10 Vadodara 0.74
11 Surat 0.68
12 Jaipur 0.61
13 Lucknow 0.58
14 Kanpur 0.54
15 Chandigarh 0.53
Source AMFI India

Barring a few top fund houses, most others do not enjoy widespread presence outside the top 10 cities. Moreover, according to the latest statistics, close to three-fourths of the overall industry’s assets pour in from the top five cities—Mumbai, Delhi, Bangalore, Kolkata and Chennai. And after including the next top 10 cities, the industry gets a whopping 87 per cent of its assets. (see table)

A day after made its announcements, industry executives said this was no big relief for the industry. Rather, they term measures “half-baked”.

According to Akshay Gupta, chief executive officer, Peerless MF: “Arguably, they (Sebi) could have done better. Present situation warrants well-defined steps to revive the sagging fortunes of the industry.”

Executives told Business Standard it was unlikely that fund houses immediately start opening branches or point of sales across the country to “push” mutual fund products. Potential investors in small towns are still interested in real estate and gold, they say. “What we can do is leverage on our tie-ups with national distributors, mainly banks. Fund houses may go ahead for tie-ups with banks to strengthen their distribution channels,” explained the chief marketing officer of a mid-sized fund house.

Jaideep Bhattacharya, managing director, Baroda Pioneer MF, says: “It’s not going to be easy going beyond the top 15 cities. It will take time as the industry needs to build up infrastructure and distribution networks, which require concerted efforts and continuous investor awareness. To start with, one may not have volumes, but the important factor is money inflow from the hinterland is stickier.”

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Garnering 30% assets from smaller cities a tough task, say MFs

The permission to charge an additional 30 basis points (bps) as total expense ratio (TER) on sales beyond the top 15 cities may look attractive, but mutual fund industry executives have taken it with a pinch of salt.

The permission to charge an additional 30 basis points (bps) as total expense ratio (TER) on sales beyond the top 15 cities may look attractive, but mutual fund industry executives have taken it with a pinch of salt.

“It’s an uphill task which demands concerted and sustained efforts,” say officials.

In its statement, the Securities and Exchange Board of India (Sebi) had said: “(asset management companies) will be able to charge 30 bps if the new inflows from these cities/ towns are minimum 30 per cent of the total inflows. In case of lesser inflows the proportionate amount will be allowed as additional TER.”
 

HOW THEY STACK UP
AUM by Geography - Consolidated data for MF Industry as on June 30, 2012

Rank Locations % of AUM
1 Mumbai 44.48
2 Delhi 13.76
3 Bangalore 5.43
4 Kolkata 5.33
5 Chennai 4.66
6 Pune 3.45
7 Ahmedabad 3.18
8 Hyderabad 2.13
9 Panaji 0.85
10 Vadodara 0.74
11 Surat 0.68
12 Jaipur 0.61
13 Lucknow 0.58
14 Kanpur 0.54
15 Chandigarh 0.53
Source AMFI India

Barring a few top fund houses, most others do not enjoy widespread presence outside the top 10 cities. Moreover, according to the latest statistics, close to three-fourths of the overall industry’s assets pour in from the top five cities—Mumbai, Delhi, Bangalore, Kolkata and Chennai. And after including the next top 10 cities, the industry gets a whopping 87 per cent of its assets. (see table)

A day after made its announcements, industry executives said this was no big relief for the industry. Rather, they term measures “half-baked”.

According to Akshay Gupta, chief executive officer, Peerless MF: “Arguably, they (Sebi) could have done better. Present situation warrants well-defined steps to revive the sagging fortunes of the industry.”

Executives told Business Standard it was unlikely that fund houses immediately start opening branches or point of sales across the country to “push” mutual fund products. Potential investors in small towns are still interested in real estate and gold, they say. “What we can do is leverage on our tie-ups with national distributors, mainly banks. Fund houses may go ahead for tie-ups with banks to strengthen their distribution channels,” explained the chief marketing officer of a mid-sized fund house.

Jaideep Bhattacharya, managing director, Baroda Pioneer MF, says: “It’s not going to be easy going beyond the top 15 cities. It will take time as the industry needs to build up infrastructure and distribution networks, which require concerted efforts and continuous investor awareness. To start with, one may not have volumes, but the important factor is money inflow from the hinterland is stickier.”

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