With a higher incentive to sell schemes in smaller towns and a sizeable corpus to spend on investor awareness, fund houses are making efforts to expand their reach beyond top 15 cities.
As per latest AMFI data, Mumbai continues to be the largest source of industry’s assets at 43%, followed by Delhi at 15%, Bangalore (6%), and Chennai and Kolkata both accounting for 5% market share each. However, the market share of Mumbai dropped from 49% in September 2011 to 43% as on March 2013.
Currently the top 15 cities account for nearly 87% of industry’s AUM. Nearly 5% of industry’s assets are concentrated in the next top 20 cities (those beyond top 15).
The AUM concentration figure might not show the correct picture as large part of industry’s assets come from fixed income assets. Presently, the asset class wise break of geography is not available in the public domain. Out of the Rs 7 lakh crore assets managed by the industry, roughly 43% or Rs 3.01 lakh crore of assets come from Mumbai. 70% of the Rs 7 lakh crore industry’s AUM consists of income and liquid fund assets.
The results may not manifest so quickly as training representatives or appointing new ones to canvass mutual funds is a long drawn process, say fund officials.
Some top AMCs are planning to set up shop in B-15 towns while others are exploring a combination of branch expansion and roping in business representatives.
HDFC Mutual Fund has added 20 new branches and has appointed 30 representatives in B-15 cities. Birla Sun Life Mutual Fund too is trying to expand its reach through a combination of representatives and branches.
UTI Mutual Fund currently has 425 district representatives across the country and is planning to add more than 100 such representatives to expand its reach in smaller towns. The fund house is also majorly focusing on investor awareness drive and plans to cover 1500 towns/cities to spread awareness about mutual funds. UTI is also in the process of appointing the ‘new cadre of distributors’ to help grow its market share in rural towns.
Others are leveraging their existing network of distributors. “We are not setting up any new branches. We are doing a lot of ground activities to leverage our existing distribution network in smaller towns. We are present in 30 locations in B-15 cities which is sufficient,” said Kalpen Parekh, CEO, IDFC Mutual Fund.
Similarly, DSP BlackRock is trying to explore alternate models of distribution.
“We get more than 50% of our sales from beyond top 15 cities which constitute a large portion of our retail sales while institutional money comes largely from the top cities. We have 28 branches out of which 14 are situated in B-15 cities. It could take at least Rs 3 lakh per month to operate a branch for which we have to generate sales of at least Rs 3 crore which might pose a challenge. I don’t think many AMCs will open branches and incur losses,” says Nilesh Sathe, Director & CEO, LIC Mutual Fund.
Fund houses typically take into account parameters like population, income levels, connectivity with other towns/districts, break-even time, etc. before setting up shops in small towns.
Most fund houses have hiked the commission structure for applications coming from smaller towns to ramp up sales. The recent partnership of fund houses with public sector and cooperative banks is also likely to help AMCs expand their reach. AMCs like IDBI, DSP BlackRock, HDFC, SBI and Peerless have joined hands with PSU banks.
