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The contribution to mutual funds (MFs) from India's smaller cities and towns - known as beyond-15 cities (B15) in trade parlance - is the highest in nearly three years.
As of December 2014, assets under management (AUM) from B15 stood at 14.3 per cent, the most since March 2012. The assets have seen an increase of 133 basis points (bps) in the past year. The total AUM for the sector is Rs 11 lakh-crore.
Investor awareness and education programmes by fund houses, coupled with the incentive scheme introduced by the market regulator, have yielded results, say sectoral players. The Securities and Exchange Board of India (Sebi) allows MF houses to charge an additional 30 bps in the total expense ratio if 30 per cent of the new flows are from B15.
"We are seeing considerable movement from smaller towns. Retail folios from these areas are increasing at a fairly good rate and the average size in the equity segment is Rs 50,000", said H N Sinor, chief executive officer (CEO), Association of Mutual Funds in India.
According to sources, the sharp rally in the equities market in the past year is not only attracting investors from the big cities but small centres as well.
Nimesh Shah, managing director and CEO of ICICI Prudential MF, said, "There is an increased level of enthusiasm for distributing mutual funds in B15 cities. The equity markets generating superior returns over the past few months has resulted in building a reasonable breadth of B-15 investors, who are content with their investments and the momentum is catching up."
MF equity folios have again touched 30 million. The number had touched a peak of 41 million in 2008. The stock market correction saw a drop to 29 million. A further boost might come from small centres that have huge uptapped potential, say those in the sector. Currently, India's top five cities - Mumbai, Delhi, Kolkata, Chennai and Bengaluru - account for 72 per cent of AUM.
Sundeep Sikka, CEO of Reliance MF, said: "A large part of the growth will come from B15 locations in the long-term. Higher compensation and stronger focus on programmes through the district adoption programme have been initiated to give a boost in this direction. Currently, 16-20 per cent of equity inflows come from B15 and the aim is to increase folios from these locations, along with the sale of simpler products such as systematic investment plans."
According to Sikka, the folio account of B15 could have surpassed that of the top 10 cities.
"The sector's efforts to expand the market seem to be paying. With the improved investor sentiment, things look very positive for the capital markets and MF equity schemes in particular," said A Balasubramanian, CEO, Birla Sun Life MF.
