The Rs.25 lakh crore MF industry requires 4 lakh new ARN holders to achieve Rs.100 crore AUM in ten years, says a report released by AMFI and BCG titled ‘Unlocking the Rs.100 Trillion Opportunity’.
The report said, “A large scale-up is required across all channel categories to reach the 100 trillion (lakh crore) vision. We believe another 4 lakh ARNs will be required to meet the 100 trillion AUM and 100 million (10 crore) investor base aspirations.”
Currently, there are 1 lakh ARN holders. An addition of 4 lakh ARN would take the total count of distributors to 5 lakh.
Nevertheless, one of the major challenges at this point is to ensure sustainable income to a large number of existing IFAs, the report suggested. Many IFAs are weighing the option of exiting the mutual fund distribution post rationalization in TER and ban in upfront commission.
The BCG report said that analysis of CAMS data indicates that the top 4000 IFAs account for nearly 95% of the total IFA AUM. This indicates the significant imbalance that exists among ARN holders.
Why 5 lakh ARN holders?
Explaining the rationale, the report noted that expansion of mutual funds in beyond top 100 cities is crucial for the industry’s growth. Since investors in these geographies will need a high-touch engagement model for guidance, IFAs can play an instrumental role.
“The need for a high touch model continues to be relevant despite the rise of digital, especially in the B15 and B30 cities, as a large number of first time investors enter the mutual fund industry,” the report said.
The report cited a Nielsen survey, which says 50% of first time investors are aware of the direct plans for investing in mutual funds and 61% of the investors track the performance of their fund through their advisors and IFAs.
More worrying is the fact that the current distribution network in MF industry is skewed towards metros and tier 1 cities. At the overall country level, there are nearly 440 ARNs per million households. While the number in T15 cities is 4,300, it plummets to nearly 230 in B15 cities.
“This gap will have to be reduced quickly to meet the 100 trillion AUM aspiration,” says the report.
The report suggested that the industry can increase the distribution force by leveraging outreach of existing distribution networks such as regional rural banks and post offices to achieve this target. The report also recommended tied distribution model to the MF industry where AMCs who bring in new IFAs can work exclusively with them for some time.
