MF assets from top cities continue to rise in Q3

Proportion of assets from top 15 cities rise for the third consecutive quarter

Despite being allowed to charge extra fees in order to bring more assets from smaller towns and cities, Indian mutual fund houses' over-dependence on top cities continues.

According to the latest statistics released by the industry body Association of Mutual Funds in India (Amfi), proportion of assets from top 15 cities have further inched up in the October-December quarter. It is interesting to note that it was at the beginning of this quarter that capital markets regulator or the Securities and Exchange Board of India (Sebi) allowed fund houses to charge extra fees if they pull in more funds from beyond top cities.

For the third quarter in a row, proportion of assets under management (AUM) from bigger cities rose. During the quarter ended 31 December, 87.71 per cent of total assets was contributed from cities like Mumbai, Delhi, Bangalore, Kolkata, Chennai, Ahmedabad, Pune, Hyderabad and Baroda, among others.

In the immediate previous quarter, assets from these cities stood at 87.43 per cent while in the April-June quarter the figure was 86.95 per cent.

Industry's executives say that it would take at least 3-5 years to see the real outcome of incentives provided by Sebi. Currently, it looks difficult as several small fund players have either closed their small cities' retail operations or shut them completely.

Mutual funds need to reduce this number if they want to charge the extra 30 basis points in addition to the expense ratio that the Securities and Exchange Board of India allowed to charge if assets are garnered from beyond the top 15 cities. This was effective from 1 October, 2012.

Sector officials maintain that garnering assets from smaller towns is a herculean task as fewer distributors are willing to sell their products after the entry load ban in 2009. While the lack of awareness about mutual funds may also hinder their efforts to produce immediate results, officials said the incentive to push sales in smaller towns to gain this additional fee is limited.

Currently there are over 40 players in the fund management space managing a total sum of around Rs 8 lakh crore.