For the quarter ended December, the share of MF assets of a total of 95 cities below the top 15 cities (T15) rose by 64 basis points (bps) year-on-year, data collated from industry body Amfi show. The share of the T15 cities, on other hand, declined 68 bps even though the share of the top 5 cities rose 11 bps during the same period.
Fund officials believe it may take at least 2-3 years before results start to show. Fund houses are doing their bit to expand their reach in tier 2 and tier 3 cities, but it will take time to change investment mindsets in these regions since mutual funds are a push product, said Akshay Gupta, CEO, Peerless MF. He added the penetration numbers in B15 cities may be better than what the Amfi numbers suggest if one looks at only the retail AUM and leaves out the institutional corpus.
Experts reckon investors in these cities may be more comfortable investing in fixed return products such as bank fixed deposits and tax-free bonds. Unless the equity market starts giving stable returns, it will be difficult to convince retail investors to put money in equity MF schemes, said senior investment analyst Morningstar India.
In August last year, Amfi had initiated its district adoption programme (DAP), where AMCs would voluntarily adopt one or more districts to boost the financial literacy among investors. Over 200 districts across the country will be a part of this programme.
According to Hassija, making inroads in B15 cities makes imminent sense, especially for the top fund houses who already have a wide penetration in T15 cities: The top fund houses have expanded their reach in major cities and the next growth is slated to come from the tier 2 cities. Besides, the top players have adequate financial muscle to tap these markets.
Some fund officials say the emphasis on B15 spread seemed to be overdone. While I agree that eventually a lot of growth for the asset management industry would come from B15 cities, we need to acknowledge there is much to be achieved in the top 15 cities. In terms of retail penetration, even in metros, there is a sizeable working population that has never invested in mutual funds. So, investor awareness is required as much in the top cities as in the B15, since understanding of the product category is very low, said Puneet Chaddha, CEO, HSBC Global Asset Management, India.