MFs find ride to smaller cities rough

Top five cities continue to contribute three-fourths of the industry?s assets

The Indian mutual fund industry continues to find it tough to attract money from investors in the country’s interiors. Despite consistent efforts to spread awareness about mutual funds as a financial product for investment, the industry has little to rejoice, as close to three-fourths of its assets still come from the country’s five major cities.

Mumbai, Delhi, Bangalore, Chennai and Kolkata collectively contributed a little over 73 per cent of the assets under management (AUM) of fund houses during the December quarter. Interestingly, compared to the September quarter, this was a decline of around 150 basis points. The next 10 cities, including Ahmedabad, Pune, Hyderabad, Baroda and Jaipur, reported a marginal rise of 23 basis points, contributing 13.2 per cent of AUM.

Contribution from the next 75 cities, too, declined during the period, a clear blow for the fund houses struggling to increase penetration. Though industry officials admit there is huge untapped money in India, they have failed to route this into mutual funds. Based on the overall folio number as on March 31, 2012, the penetration of mutual fund products, at less than four per cent, continues to be poor.

Last year, when the Association of Mutual Funds in India (Amfi) launched its media campaign to promote mutual fund products as a savings alternative under the tag line ‘Saving ka naya tareeka’, experts expected it to help increase penetration. However, the campaign managed to remain on air barely for a few months.

“One needs to understand that we have not reached a level where mutual funds are bought. They still have to be pushed, which involves high costs,” explains the chief executive officer of a medium-sized fund house, who did not wish to be named.

Interestingly, according to Amfi, 36 asset management companies (AMCs) conducted a whopping 10,606 investor awareness programmes across 405 cities in FY12. This is almost double of that between May 2010 and March 2011. However, compared to 3,40,383 participants during this period, the participation declined to just 2,67,371 in FY12.

“The industry’s efforts are not enough,” notes the chief marketing officer of a large sized bank-sponsored AMC. He says the industry is facing a tough environment and retail participation is not happening. To top it, “hyper-activism of the regulator in recent years has made life uneas.”

When asked about the benefit from such programmes, the executive vice-president and national sales head of a privately-owned AMC says, “These are initiatives in the right direction. They may not help the industry overnight but penetration would be better with increased awareness among masses.”

In interactions with Business Standard, industry executives have denied any expansion plan.

They say the priority would be consolidation of business in existing centres, rather than opening new ones. As on March 31, there were 44 fund players managing assets worth Rs 6.64 lakh crore.