Top 5 cities account for a whopping 75% of industry AUM and if we add the next 9 cities, the percentage goes up to 87%, shows an analysis of AMFI data
Mumbai: Even 24 years after the Indian MF industry was opened up to public sector banks and institutions, the industry is yet to make any significant progress outside the top cities. The latest data released by AMFI reaffirms the fact that 14 cities account for 87% of the Rs 6.41 lakh crore AUM of the industry as on September 2011. The remaining 13% of assets come from the next 95 cities.
Mumbai, India’s financial hub brings in almost 50% of the assets, followed by Delhi (11%). Bangalore, Chennai, and Kolkata have a combined share of 15% in MF industry’s pie.
The next 95 cities present a huge opportunity for fund houses, especially those backed by PSU banks which have vast branch networks.
Asset mix
The geography wise AUM disclosure comes at the behest of SEBI which has been urging fund houses to step beyond their metros and get in to semi-urban and rural areas.
Of the Rs 6.41 lakh crore AUM, almost half or 47% (Rs 3 lakh crore) comes from income schemes, liquid or money market schemes account for 20% or Rs. 1.28 lakh crore, which are majorly subscribed by companies or large investors. Retail money, which mainly comes from equity mutual funds, account for 24% of the industry AUM. The remaining chunk of assets comes from ETFs, fund of funds and gilt schemes.
Hurdles
Fund houses face a few challenges in setting up shop in smaller cities and towns. First and foremost, awareness about mutual funds is low in such areas. AMFI has made a beginning by promoting the concept of mutual funds through television commercials and investor camps but the impact will be visible only after a time lag.
Fund houses first evaluate whether they can raise a certain AUM in order to justify costs. They also factor in the time to break even. Although registrars like CAMS and Karvy are present in most cities, these are just points of collections. CAMS has branch offices in 220 cities and Karvy is present in 226 locations.
Fund houses would only succeed if they generate huge volumes in such cities given the average SIP value of Rs. 2,000. We need to wait and watch if the recently introduced transaction charge, meant for small town IFAs, has the ability to activate these markets.
The industry needs to bring new IFAs in small towns if it wants to increase the reach of mutual funds. But the changing business economics have actually shrunk the advisor community who service investors door to door. Of the 40,000 KYD compliant ARN holders, AMFI says that there are around 17,000 active distributors across India.
Slow beginning
AMCs, especially bank sponsored ones having vast branch networks are beginning to see SIP inflows from all cities, though not in a big way. “It will take time to make that pie bigger. In our case SIP inflows are coming from 650 cities. Incremental assets are coming from tier three and tier four cities especially for AMCs who have a deeper network. It is difficult for foreign AMCs who don’t have branch networks beyond 15 cities to get inflows from 100 locations. There are costs involved in it,” says Karan Datta, National Sales Head, Axis MF.
