States with higher number of mutual fund distributors have higher penetration of mutual funds and vice versa, shows a report by Fintso titled ‘The Next Billion – Inclusion Through Digitization.’
MFDs are primarily responsible for mutual fund distribution in the country and account for 80% of the total investments of individual investors.
This shows the low penetration of do it yourself (DIY) models and the importance of individual MFDs for growth of the MF industry, said the report. The report further said that lack of trust in the source of advice; extensive documentation and need for active guidance are reasons for reluctance of individuals from using DIY means and platforms in any meaningful way.
Here are other key findings of the report
- India has over 27.5 crore households with an estimated 90% living in Tier 1 and beyond. The vast majority of the 10 crore households are estimated to become savers for the first time – looking beyond bank FDs. This segment is largely under-served and is increasingly wary of unregulated investments. The report highlights the crucial role of new technology and digital initiatives as the bridge between retail investors, MFDs and financial upliftment and inclusion
- As per RBI, states like Kerala, Karnataka and Maharashtra have achieved high financial inclusion with the Index of Financial Inclusion (IFI) > 0.5, while some states fall in the medium category with the IFI ranging between 0.3 and 0.5
- The report analyses that there has been a gradual shift in the investment structure from physical assets and traditional savings in cash to more regulated means — FDs, mutual funds, direct equities, insurance products. As per RBI data from June 2020, 53% of the total household assets has been invested in bank FDs while mutual funds account for 13% of the total household assets
- With the increased number of digital frauds, people are reluctant to invest digitally due to lack of financial awareness and lack of trust in the source of advice. According to a BCG report, 85% of the people staying in small cities and town need handholding to invest in financial products
