Mutual fund assets: Smaller cities' share on rise

Equity accounts for higher proportion of assets than in bigger ones, shows Amfi data

The mutual fund (MF) sector is seeing rising activity beyond the top 15 cities (B-15, in the parlance; the top 15 are termed T-15), and equity is playing a bigger role in such places than in the metropolitan areas.

Improved distribution and regulatory changes to the fee structure to encourage participation from smaller places have helped the trend, say experts. In fact, the Rs 12 lakh crore sector is seeing faster growth in assets from these non-traditional centres. The growth in assets under management (AUM) from B-15 was 36.2 per cent in 2014-15; it was 35 per cent in T-15. In 2014-15, the AUM from B-15 grew from Rs 1.39 lakh-crore to Rs 1.9 lakh-crore.

Interestingly, the share of equity assets in the B-15 AUM is 41 per cent, much higher than in T-15, where it is less than a third (around 27 per cent). Debt AUM is 73 per cent of the total in T-15, largely due to the presence of corporate groups and financial institutions in such locations, big investors in MF debt schemes.

The top 15 account for 84.3 per cent of the sector's assets. However, the share of B-15 is seeing an uptick, thanks to the incentive scheme announced by the market regulator (allowing an additional expense ratio of 30 basis points for B-15) for garnering assets from under-penetrated regions.

According to Nimesh Shah, managing director and chief executive officer (CEO) of ICICI Prudential MF, "There is an increased level of enthusiasm for distributing MFs in B-15. With the equity market generating superior returns, a reasonable breadth of B-15 investors has been built."

The rise in contribution from B-15 is a welcome sign for the sector, struggling for long to mobilise assets from these regions. Sector officials believe their next wave of growth would come from smaller towns.

Statistics from the Association of Mutual Funds in India (Amfi) suggest 23 per cent of all the assets held by individual investors is from B-15. On the institutional side, 10 per cent.

Sundeep Sikka, CEO of Reliance MF and also the chairman of Amfi, says the B-15 locations will account for a growing part of the growth in MFs in the long term. "The aim is to increase folios, along with sale of simpler products like systematic investment plans from these regions," he said.

The number of equity folios, largely retail, jumped from 29.1 million to 31.6 mn during the year. In 2014-15, the overall asset size of the sector touched a record high of Rs 12 lakh crore. Apart from strong inflows in equity schemes, a nearly 25 per cent appreciation in stock markets helped the rise.