MF investments from 'Bharat' see traction

AUM contribution tops 14%, retail equity folios near 20 mn-mark of B15 cities

It is not only wealthy and urban investors who are intrigued by the stock market rally. Investments into mutual funds (MFs) by investors beyond the top 15 cities — ‘B15’ in sector parlance — are seeing huge progress with the country’s benchmark indices scaling new highs.

The contribution of B-15 centres to the segment's overall assets under management (AUM) rose to 14.2 per cent in September, an increase of more than 100 basis points (bps) compared to December 2013.

In other words, of every Rs 100 of assets, Rs 14 has been contributed from smaller cities and towns. The MF sector's size is about Rs 10 lakh crore.

To boost participation from the non-traditional centres, the Securities and Exchange Board of India (Sebi) had in September 2012 allowed fund houses to charge an additional 30 bps in total expense ratio if fresh inflows from B-15 places were 30 per cent of gross inflows.

"In absolute terms, asset growth in B15 cities is extremely fast. The 30 bps allowance was a well-conceived plan, which has worked. More distributors are getting empanelled in these regions, a good sign,” said Milind Barve, managing director of India's largest fund house, HDFC MF.

Those in the sector say the Sebi initiatives such as higher compensation and investor awareness programmes have begun to yield results.

H N Sinor, chief executive at the Association of Mutual Funds in India, said: "With what was started by Sebi about a year and a half before for B-15, we are now seeing considerable movement on retail size in B-15 towns."

He points to the progress between March 2013 and September 2014. “There is consistent improvement. What we have seen is that retail investment in equity and balanced (funds) and equity-linked savings schemes has moved from Rs 65,000 crore to Rs 1 lakh crore of AUM, a one-third rise in B-15 assets,” he said.

Further, the rise in retail folios (accounts) from smaller towns has been at a faster clip. In these 18 months, there has been an addition of 1.5 million new retail folios in the equity segment in B-15 cities. Currently, the total number of retail equity folios here is 19.8 million.

The folio numbers are encouraging, those in the sector say, given the poor penetration of equity products across the country. "The average size of investment in B-15 cities stands at about Rs 50,000," said Sinor.

The industry executives feel the next phase of rise in AUM is slated to come from the smaller cities and towns where there is huge untapped potential. According to them awareness about MF products as investment has to be a continuous process.

The industry body, Amfi, has already stepped up and is using TV commercials as well as radio advertisements to reach out to more and more number of potential investors. Under the district adoption programme, several fund houses are taking care of anywhere between five and 15 districts each, involving awareness programmes and engaging and empowering distributors.