MFs' inertia to tap B-15 towns refuses to go

Despite incentives, assets from smaller cities rise only 40 bps in last five quarters

"If a branch manager, working with two-three, can mobilise Rs 5 crore in three-four weeks (in a small village) why is the mutual fund sector not able to mobilise that much?," were the recent remarks by Finance Minister P Chidambaram. However, MF houses haven't been able to do much in asset gathering from the hinterland.

This is despite demands for incentives met by the Securities and Exchange Board of India (Sebi). The regulator had allowed houses to charge more if assets were garnered from beyond the top-15 cities (B-15). Yet, houses continue to focus on the accessible top cities.

It was in September 2012 Sebi had permitted fund houses an extra 30 basis points (bps) if they got assets from the B-15, the smaller cities and towns. Fifteen mlonths after, the situation remains almost the same. Against 12.57 per cent in September 2012, the sector has 12.97 per cent of their assets under management from B-15 as on December 2013.

CHIDAMBARAM’S ADVICE TO MFS

• If a branch manager working with two-three people can mobilise Rs 5 crore in three-four weeks, why is the mutual fund sector not able to mobilise that much?
• Regain the trust of the retail investors
• Try different models, use different vehicles  to promote financial literacy

Chidambaram urged: "I know it's tempting and easy to remain in the top-15 cities. There are 53 cities with more than 10 million and 200 cities with a million."

The contribution from top cities - Mumbai, Delhi, Kolkata, Bangalore and Chennai - had in fact, scaled up higher during this period, though marginally, from 74.32 per cent to 74.37 per cent. Sebi Chairman U K Sinha had said: "The initial hopes of Sebi are not fulfilled."

Sector officials had told Business Standard that Sebi's incentives would encourage players to penetrate B-5, though it would take some quarters to see positive growth. It's over five quarters now and the inertia remains. Setting aside the recent explosive expansion by SBI MF and UTI MF, wherein the former opened 51 branches and the latter 101 centres in one go, expansion in the B-15 cities is pathetic.

According to Sinha, the sector could open only 51 branches after the 30-bps incentive in B-15. And, the majority from the top asset management companies - HDFC MF, ICICI Prudential MF and Birla Sun Life MF. This suggests a majority of the fund houses in the 44-player sector remained quiet. Some even closed branches in these places.