MF trends decoded: More than 50% of new investors from smaller cities

While smaller cities contribute a significant number of new investors, their overall AUM remains lower compared to larger urban centers.

The mutual fund industry in India is witnessing a significant influx of new investors from smaller cities, according to a study by Zerodha Fund House.  The number of new investor folios has been steadily increasing on a monthly basis, with over 2.3 crore new folios added from April to August 2024. More than 50% of these new investors come from smaller cities, classified as B-30 cities by AMFI.

Data source: AMFI, Zerodha Fund House

However, smaller cities still account for only 19% of the overall Assets Under Management (AUM) of the mutual fund industry. "This indicates that while more individuals from these regions are participating in investments, the average investment size may still be lower compared to those from larger urban centers," noted the study.

 

The average ticket size of the retail segment in smaller cities is about Rs 1.13 lakh  while the combined average ticket size of the retail segment for (T30+B30) cities is about Rs 2.04 lakh.

What are the factors that have contributed to this trend in smaller cities?
 

1. Contribution from live SIP accounts:

As of Aug 2024, about 54% of all the SIP accounts in the mutual fund industry is contributed by SIPs from smaller cities. Smaller cities have a larger number of SIP accounts reflecting greater penetration in less urbanized areas, as per the study. 

From April to August 2024, the growth rate in the SIP accounts in smaller cities for Index Funds (18.7%) is higher than the growth rate of any other category in the industry. Altogether, about 79% of the SIP accounts from smaller cities are contributed by growth/equity oriented schemes.

The below table represents the growth rate in SIP accounts across different categories of schemes (as per MCR) for this financial year from Apr 2024 to Aug 2024

2. Access to Direct Plans:

The rise of smartphone apps, direct investment platforms, digital payment systems, and industry initiatives has led to more than 50% of all the new investor folios in smaller cities to invest through direct plans.