Believe it or not, amid the worsening economic scenario, Indian investors from smaller cities showed confidence in investing through the mutual funds route during the second half of the previous financial year.
The period witnessed huge volatility in stock markets with key benchmark equity indices hitting their recent lows as well as highs, inflation remained at elevated levels and the euro zone crisis kept hitting India. Despite all these hiccups, small town mutual fund investors continued to pump in money.
Between September 2011 and March 2012, proportion of assets contributed by Tier-I, II & III cities and smaller towns in assets under management (AUM) of the Indian mutual fund industry increased 3.63 per cent to 28.88 per cent. In absolute terms, these regions contributed Rs 7,500 crore more to the industry's AUM. These cities include Pune, Ahmedabad, Jaipur, Lucknow, Patna, Ludhiana, Varanasi, Indore and Bhubaneshwar, among others.
|SHRINKING URBAN PIE
AUM by geography (contribution by top 5 cities)
|AUM of the
industry (Rs Crore)
|AUM: Assets Under Management
Source : Association of Mutual Funds in India (Amfi)
Interestingly, investors in the top five cities — Mumbai, New Delhi, Bangalore, Chennai and Kolkata, which contribute the most to the industry's assets, applied brakes on investments. Thus, during the period their contribution declined from 74.75 per cent to 71.12 per cent. In terms of assets, it shrank by around Rs 62,200 crore.
“Money is there (in small cities) and people are more than willing to invest if one makes products available to them with good advice. In our case, out of our total inflows through systematic investment plan (SIP), 35 per cent came from Uttar Pradesh,” says G Pradeepkumar, chief executive officer (CEO) at Union KBC Mutual Fund. Churn in investment from small towns is lower and they invest for a longer term, he adds.
Asset management companies (AMCs) in India have always been criticised for their focus on top cities. According to the industry's officials, the top cities contribute more in terms of institutional money. In conversations with Business Standard, they have maintained there is nothing wrong if industry gets institutional money in its kitty. But they also admit that money from smaller cities, which is mostly retail money, is a far more stickier asset.
Akshay Gupta, CEO of Peerless Mutual Fund, says, “Another key factor which has made smaller cities gain is investors’ attraction towards gold ETFs. This product category has seen inflows coming from the country’s hinterland.” According to him, in bigger cities there are more distributors, independent financial advisors and banks, which eventually lead to lot of churning. “Moreover, alternative investment products, including several tax-free bonds also drained out the metros,” adds Gupta.
The Indian mutual fund industry has been continuously focusing on investors’ financial literacy. Several fund houses have carried out road shows across the country. Sundeep Sikka, CEO, Reliance Mutual Fund, says, “Our focus is on retail and how to improve operational efficiencies. Today, penetration is less than three per cent, but in the coming years it may reach 10 per cent of the Indian population. Though acquisition of retail is expensive but in the long-term it pays.”
Many fund managers blame institutional money which reduced top metros’ contribution to industry’s assets. “Banks and other institutions tend to redeem money during the end of every financial year. This led to the shrinking of top metros’ assets in overall assets of the industry,” explains Ajit Menon, executive vice-president of BlackRock Mutual Fund.
The industry’s AUM as on March 31, 2012 stood at Rs 5,87,217 crore against Rs 6,41,937 crore on September 30, 2011, according to Association of Mutual Funds in India.