MFs spread wings in hinterland

Tier-II cities and below accounted for over half of new SIP folios in FY14, after years of trying and regulatory push; results uneven, however

Indian mutual fund (MF) houses seem to have finally cracked the code for attracting investors from outside the big cities. More than half the folios, or accounts, opened in 2013-14 under a Systematic Investment Plan (SIP) have come from tier-II or smaller cities — known in sector parlance as B-15, meaning, beyond the top 15 cities.

An SIP is a MF scheme which allows investment of small sums at regular intervals, as against a one-time investment option, where a lump sum is put in at one go.

From data provided by registrar Computer Age Management Services, 53 per cent of the nearly 700,000 SIP folios opened in FY14 came from B-15. This data covers about 60 per cent of the sector size; however, other entities said data with the other registrars was likely to be in line.

MF officials said the concerted efforts to ensure the reach extended beyond the top cities could have finally begun to yield results.

“Trying to change investor behaviour in smaller towns takes time. The increase you are seeing is due to conscious efforts by fund houses. Many investor education programmes are being conducted over the past few years,” said Sundeep Sikka, chief executive officer (CEO), Reliance MF. He said the bulk of their SIP folios were from B-15.

However, given the low investment size in smaller centres, the assets under management (AUM) from B-15 was only a third of the total from SIPs. According to sector estimates, the average equity size in a B-15 centre was Rs 1,000-2,000, compared to Rs 5,000-10,000 in the top 15 cities. The total AUM under SIPs was Rs 39,449 crore as at end-March 2014,

“While the number of SIP folios coming in from the smaller centres has increased, the corpus remains low, as the average ticket size there is much smaller,” said Sunil Subramaniam, deputy CEO, Sundaram MF.

Growing investment from smaller cities is an encouraging sign for the Rs 8 lakh crore MF sector. It presently derives almost three-fourth of its assets from the top five cities.

MF houses have struggled to spread beyond the top centres, despite the regulator providing extra incentive to do so. In a first incentive programme since the 2009 ban on entry load, the Securities and Exchange Board of India in 2012 allowed fund houses to charge an additional 30 basis points of the expense ratio if 30 per cent of the assets came from B-15 centres.

The move gave fund houses more room to pay higher compensation to distributors for the sale and distribution of products. Analysts said it had helped.

“In the smaller centres, SIP is the only mode of investment that makes sense, as there are very few large investors who can make lump sum payments,” said Dhirendra Kumar, CEO, Value Research, an online MF tracker.

Sector officials said SIP folios from B-15 were likely to pick up, as fund houses continue with the effort to grow their presence in these places.

However, analysts add, efforts to expand are seen largely only among the larger houses or among those with the financial power to bear the cost of such expansion. “The incentive structure is such that only a handful would have been able to implement it. The smaller fund houses would have been left out,” said Kumar.
EFFORTS MADE TO GET ‘BHARAT’ INTO EQUITY INVESTMENT FOLD

• Sebi, fund houses have been pushing the cause of investor education in non-metro areas
• Sebi has opened local offices, conducted joint programmes across the country
• 86  districts identified to be the immediate target districts and MFs have agreed to adopt these districts
• Other industry bodies also being pulled in to educate investors on equities