Top 15 cities continue to dominate MF assets

Mutual funds might need to boost their efforts to sell products in smaller towns if they have to be eligible for the extra fee that can be charged for sales outside the top 15 cities. Data shows the top 15 cities continued to be the main contributors to the industry’s assets under management (AUM) in the three-month period ending September 30.

According to top mutual fund officials, the trend may continue in the October-December quarter, too, as several mutual funds wound up their sales network in smaller towns because they were unviable.

In the July-September quarter, the proportion of AUM from the top 15 cities to mutual funds’ total assets rose to 87.43 per cent from 85.59 per cent in the April-June quarter. As on September 30, the industry’s AUM was roughly Rs 7.5 lakh crore .

Mutual funds would have to reduce this number if they want to charge the extra 30 basis points in addition to the expense ratio that the Securities and Exchange Board of India (Sebi) has allowed to charge if assets are garnered from beyond the top 15 cities. This is effective from October 1, 2012.

Mutual fund officials said the industry faces a Herculean task of garnering assets from smaller towns, as fewer distributors are willing to sell their products after the entry load ban in 2009. While the lack of awareness about mutual funds may also hinder their efforts to produce immediate results, officials said that the incentive to push sales in smaller towns to gain this additional fee is limited

“Focus on smaller cities, given the incentives provided, will not take less than four-five years to really borne fruits,” said Akshay Gupta, CEO, Peerless Mutual Fund. “ And, this effort by all AMCs (asset management companies) need to be a continuous process. Any discontinuity in between will bring the industry back to same situation as we are in today,” he said.

Metros such as Mumbai, Delhi, Bangalore, Chennai and Kolkata continued to be the hotspots for the mutual fund industry to sell their products. For the July-September quarter, these cities accounted for 74.32 per cent of the industry’s assets, against 72.66 per cent in the previous quarter. The increase in asset proportion from the five metros pushed top 15 cities’ assets.

“Typically, during the second quarter, institutional money comes in the industry (which increases asset proportion from big cities),” said Srinivas Jain, chief marketing officer at SBI Mutual Fund. “Moreover, relaxation from the regulator got effective from October (after the July-September quarter) and we have to see how it turns out for the industry,” he said.

Jain said it will take a few quarters to see the impact of the new regulations, which allowed higher expense ratio if assets are garnered from smaller cities.

Mutual fund industry officials said that companies with public-sector banks as parents could benefit the most from the new rule, because these lenders have an existing network to push the products at no extra cost.