Small states boost mutual fund industry

Growth in mutual fund (MF) assets from smaller states outpaced the industry growth rate in the past one year.

While total assets under management (AUM) increased 30 per cent, assets from several smaller states have grown between 50 per cent and 155 per cent.

Northeastern states such as Arunachal Pradesh, Assam, Meghalaya and Mizoram have reported growth in excess of 58 per cent. Further, regions comprising the states of Bihar, Jharkhand, Chhattisgarh, Madhya Pradesh, Uttarakhand and Himachal Pradesh, too, registered a growth of over 50 per cent in their MF assets. Although the growth has come on a relatively low base, sector officials say there has been a significant improvement in acceptance of MFs as investment vehicles from smaller cities and towns — known as beyond-15 (B15) in industry parlance. 

Also, MFs are scoring over traditional investment choices, such as real estate and gold.

“MF as an investment product is getting a good response from investors in smaller cities. I believe that sooner or later, investments in mutual funds will be part of every Indian’s monthly wallet. It is worth to note that there is immense potential in India’s hinterland especially at a time when other investment avenues are losing attraction,” Sundeep Sikka, chief executive officer (CEO) at Reliance Nippon Mutual Fund, said.

Over the past decade, the country’s fund industry has been conducting investors’ awareness programmes. This has only intensified in recent years, with an aggressive advertising campaign helping the fund industry connect with investors across India.

Monthly systematic investment plan (SIP) amounts have reached a record high of Rs5,500 crore against Rs 3,000 crore two years ago. The number of SIP accounts has also reached a high of 16.6 million against 10 million two years ago.

“Incentives to distributors in B15 cities have helped penetration of MFs. It has encouraged distributors to reach out to more number of investors. These markets are still untapped and thus offer huge potential. Investors’ awareness programmes have also contributed a lot in bringing in more investors,” said Nimesh Shah, CEO and managing director at ICICI Prudential Mutual Fund.

Currently, about 18 per cent of the assets of the MF industry are from B15 locations. At Rs 3.79 lakh crore as of September 2017 — it is a rise of 39 per cent against Rs 2.74 lakh crore during the same month last year. Further, 57 per cent of B15 assets is in equity-oriented schemes.

G Pradeep Kumar, CEO of Union Mutual Fund, said, “Much of the growth in smaller cities has been the result of extra push given to B15 cities by Sebi (Securities and Exchange Board of India) and the MF industry. The low level of penetration in these states offers an excellent base for sustained growth for many more years. Wealth creation through MFs can be a game changer in these states.”

Interestingly, at a time smaller locations put up a better show in terms of AUM growth, established markets have seen lower-than-industry growth. In the past one year, Kerala reported AUM growth of 11.2 per cent, Gujarat (20 per cent) and New Delhi (28 per cent). Higher AUM base of these states appears to be the prime reason behind relatively lesser growth.