According to the Sebi white paper, about Rs 3 out of Rs 5 invested in a mutual Funds originates in Mumbai. The city's AUM-GDP ratio is a high 126%, indicating that money from outside Mumbai is coming to be invested here. The AUM-GDP ratio captures the amount of wealth invested in mutual funds to the earnings of a given region. The paper notes that about 80% of the AUM invested in Mumbai are institutional or non-retail in nature. Such large non-retail participation is justified considering almost all large companies headquarters and financial operations are conducted out of Mumbai, the Sebi paper states.
The study noted the top 60 districts, which contributed 41% to the country's GDP, contributed over 90% to the total MF AUM. The contribution of the next 60 districts is just 4% and then falls off rapidly for the remaining districts. In fact, the reach of mutual funds in most districts of the country is less than 1%. Fund houses feel that finding quality distributors especially in small towns and rural areas was a major hurdle towards increasing mutual fund penetration. This problem is more prevalent in case of AMCs with relatively lower AUM levels. More than 89% of all distribution costs by AMCs are incurred in the T-15 cities and their corresponding districts, the paper observed.
Huge costs when entering new areas were a barrier. AMCs feel the current incentive to go beyond top 15 cities may be inadequate and additional fiscal incentives for opening branches may be needed to go beyond the top 15 cities.
In 2012, Sebi had allowed fund houses to charge an additional 30 bps in the total expense ratio for inflows from B-15 cities. The white paper also said that banks and savings account holders are not being adequately tapped for sale of mutual funds.
If one can assume that savings account holders visit their bank branches even once in two months, this would present a good opportunity to inform people about mutual funds and possibly convert them into investors, states the report.
According to the study, AMCs feel that investors in metros are significantly better informed compared with investors in non-metro cities. However, the distinction is not as sharp when awareness levels of investors in T-15 and B-15 cities are compared. Also, within the T-15 cities, awareness levels about different mutual funds were far higher in the five metro areas than the rest of the T-15 cities. About 57% of AMC respondents believed that lack of customer information was the biggest challenge they face in selling mutual fund products.