Mutual funds' assets from smaller cities rise

Post Sebi's incentives, for the first time, B-15 cities are showing an uptick in the proportion of assets

The measures taken by the capital markets regulator Securities and Exchange Board of India (Sebi) last year to push sales of mutual fund products in smaller towns and cities seem to be showing positive signals now.

For the first time since the new regulations came into effect on October 1, 2012, allowing asset management companies (AMCs) to charge extra fees to bring more assets from beyond the top 15 cities, the proportion of assets from smaller cities rose in Q4 FY13.

According to latest data from the Association of Mutual Funds in India (Amfi), there has been an increase of 84 basis points (bps) in assets from beyond top cities during the January-March 2013 period. It is noticeable that prior to this, the last four quarters in a row had seen a steady decline in proportionate assets from smaller cities.

This improvement has brought relief to insurance officials as they have been trying to penetrate in the hinterland to take advantage of the incentives. Mutual funds are allowed to charge an extra 30 bps in addition to the expense ratio that Sebi has allowed if the assets are garnered from beyond the top cities.

Deepak Chatterjee, managing director at SBI Asset Management Company, says, "There are several cities, even beyond the top 15 cities, which are quite big. And investors in these regions have enough money to invest."

Agrees Akshay Gupta, MD & CEO of Peerless Mutual Fund. "This is, undoubtedly, the result of Sebi's incentives and the industry's continuous efforts to bring fund flows from smaller towns. Going forward, I believe there will be incremental development and maybe some years down the line, the proportion of assets from smaller places will grow substantially," he says.

Although sector executives say continuous and concerted efforts are required to sustain the momentum, since garnering assets from the hinterland is not an easy task. Any feeling of complacency should not set in following this improvement, they caution.

The CEOs of several top fund houses told Business Standard most of their current expansions are in 'beyond 15' cities. "We understand that those branches will not turn profitable overnight, but will help us in the long run," says the CEO of a large fund house, which added 20 new branches in the last one year.

Currently, the top five cities -- Mumbai, Delhi, Bangalore, Chennai and Kolkata -- account for 74 per cent of the industry's overall assets, while the next 10 cities contribute a little less than 13 per cent.

As on March 31, 2013, India's mutual fund industry with 44 players had an average assets under management of 8.16 lakh crore.