UTI, SBI MFs lead small town footprint due to strong branch presence

Backed by their strong physical presence across the country, UTI Mutual Fund and SBI Mutual Fund (MF) have managed to mobilise a higher proportion of their total assets under management (AUM) from towns and villages than their peers.

Data compiled by Nuvama Institutional Equities shows that UTI MF and SBI MF are the only two major fund houses with over a fifth of their AUM coming from areas beyond the top 30 cities (referred to as B-30). UTI MF tops the chart with 23.8 per cent of its assets belonging to B-30 centres, followed by SBI MF with 21.2 per cent B-30 assets.

The industry average stands at 17 per cent.

In terms of absolute AUM, however, the B-30 pecking order is different. HDFC MF and ICICI Prudential MF derive a lower proportion of their AUM from B-30 but they are among the top three fund houses when it comes to absolute figures.

As of March 2023, SBI MF was managing Rs 1.46 trillion B-30 assets, followed by HDFC (Rs 79,170 crore) and ICICI Prudential (Rs 77,060 crore).

According to market leader SBI MF, it wants to increase the proportion of B-30 AUM to 25 per cent.

“We expect B-30 growth to continue on the back of our physical presence at over 250 locations across the country, along with a strong distributor network and trust enjoyed by the brand,” said D P Singh, deputy MD & CBO, SBI Mutual Fund. If only retail AUM are considered, the B-30 share is higher at around 30 per cent.

With MFs making significant strides in terms of penetration in top cities over the years, many fund houses have recently shifted efforts to make early strides in locations with comparatively lower penetration. A key piece of this puzzle has been expanding physical presence. 

According to MF distributors, apart from acting as an investor touch point, branches help MFs get visibility and win the trust of new investors. Branches also serve as meeting points for MF staff and distributors.

Since the Covid pandemic, SBI MF has led the way in terms of expanding physical presence by opening around 55 new branches during the 2020-2022 period. The country’s largest fund house has a physical presence in small towns like Purulia (West Bengal), Mirzapur (Uttar Pradesh), Chaibasa (Jharkhand), and Srikakulam (Andhra Pradesh). This is despite its association with the State Bank of India, which already has a country-wide presence that SBF MF can tap into.

Table-topper UTI MF prides itself on the distribution network it has created in B-30 locations. At the end of financial year 2022, it had 167 branches and 108 of them were in B-30.

Increasing the penetration of MFs in smaller towns has been a priority for the industry and the regulator for several years now. To achieve this objective, the industry used to pay extra incentives to MF distributors for bringing money from small-town investors. Though this initiative now stands suspended, MF executives believe the alternative proposal by the Securities and Exchange Board of India (Sebi) will be equally efficient in driving MF penetration. In a consultation paper released recently, Sebi has proposed to incentivise MF distributors for bringing new investors, irrespective of the location. The market regulator has proposed a flat fee for distributors at 1 per cent of the size of the first application amount or the amount of SIP committed subject to a maximum incentive of Rs 2,000.

Over the years, B-30 has caught up with T-30, at least in terms of systematic investment plan (SIP) investments. At the end of February 2023, almost 50 per cent of the active SIP accounts were from B-30.