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“What does SBI Mutual Fund know about doing business in small towns that we don’t?” That’s the question many in the 44-member-strong mutual fund sector in India are asking themselves, after the fund house announced it was opening 51 branches across tier-II and III towns in India. The move has flummoxed many, as it comes at a time when investor appetite for mutual fund products is low and many asset management companies have shut unviable branches, especially in regions other than large cities.
The latest branch addition by SBI Mutual Fund, India’s sixth-largest asset manager, raises the number the company’s brick-and-mortar branches from 110 to 161. Of these, 139 are outside the top 15 cities (B-15 cities). To many in the mutual fund sector, branches in Port Blair, Itanagar, Leh, Faizabad, Imphal, Darbhanga, Hazaribagh, Pathankot, Kalyani, Silchar, Jorhat and Dimapur, among others, do not make sense. But SBI Mutual officials see big business opportunities in these places, where the concept of mutual fund investing is relatively alien.
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“There is a general feeling places such as Leh and Port Blair do not have much money. But the reality is there is a huge potential, going by bank and postal deposits at such places,” says Dinesh Khara, managing director and chief executive of SBI Mutual Fund. “Unless we increase our reach in such locations, we cannot capture investors who are willing to invest through direct channels,” he adds. Swimming against the tide may not yield immediate results, but Khara is looking to put in place a strategy that will help SBI beat its rivals in the longer run.
According to Securities and Exchange Board of India (Sebi) chief UK Sinha, who has been urging mutual funds to expand beyond the top 15 cities, the sector has opened only 55 branches in B-15 cities in the last 15 months (excluding the recent SBI Mutual expansion). Mutual fund industry officials said this was because 80 per cent of their assets under management (AUM) were accounted for by the top 15 cities alone.
Currently, HDFC Mutual Fund, India’s largest fund house, has 138 branches in all. Of these, 98 are in B-15 areas. In the last 15 months, the fund house has opened 24 new branches, 20 of those in B-15 cities. For ICICI Prudential Mutual Fund, the total number of branches stands at 121, with 97 in smaller cities and towns. The fund house opened 17 branches in B-15 cities after September 2012; five more are in the pipeline.
Of Birla Sun Life’s network of 109 branches in all, 89 are in B-15 cities. It has opened 17 branches in B-15 cities after September 2012. UTI Mutual Fund, on the other hand, has 150 district financial centres. Though the company has opened only one B-15 district financial centre in Haridwar, it plans to open 27 more by the end of this financial year. The new incentive structure that allows mutual funds to charge higher fees for sales outside the top 15 cities has hardly encouraged mutual funds to set up branches there. Though Sebi had allowed fund houses to charge an additional 30 basis points on assets garnered from beyond the top 15 cities, the sector feels this fee isn’t worth the effort.
To start with, SBI Mutual Fund plans to take baby steps to grow across the new branches. Recently, SBI Chairperson Arundhati Bhattacharya instructed branch heads (through conference calls) to first make investors comfortable with mutual fund products. Sales managers were told to sell simple products first, before taking them to the next level of investments.
