Welcoming the progress made by mutual fund (MF) players to extend their reach beyond the top- 15 cities, the Reserve Bank today said there is a need for more work on this aspect and on investor awareness.
The number of folios in B-15 cities (or top-15) rose by around 45 per cent, from 14.4 million in March 2014 to 20.9 million in March 2016. For the biggest 15 cities (T-15 cities), the count increased by around 6 per cent, from 25.2 million to 26.8 million during the same period.
This indicates geographical diversification and brings stability to the mutual fund (MF) industry in India. Continued efforts are needed for improving investor awareness and strengthening the integrity of market processes and investor protection, said the RBI in its Financial Stability Report (FSR) released here.
A folio is a unique number given to an investor by a MF house for investing in a particular scheme.
The MF sector has been witnessing increased activity beyond the top 15 cities (referred as B-15), in recent years, which indicates an expansion of the investor base, helped by improved distribution and regulatory changes to the fee structure to encourage participation from smaller places.
The amount of assets under management from B-15 cities, as a per cent of the industry AUM, increased in both equity and non-equity segments from March 2014 to March 2016.
The report has warned of increase in exposure of debt- oriented MF schemes to corporate bonds. The exposure of debt- oriented schemes to corporate bonds as percentage of their AUM increased by 4 per cent between September 2015 and March 2016.
While investments in corporate bonds offer higher returns, the risk premium may not be commensurate with elevated corporate stress as reflected in a large number of rating downgrades, it said.
Sebi recently revised prudential limits for sectoral exposure to 25 per cent from 30 per cent and reduced additional exposure limits with respect to housing finance companies (HFCs) in financial sector to 5 per cent from 10 per cent.
The capital market regulator further introduced prudential limit of 20 per cent of the net assets of mutual fund scheme for group level exposure.
The exposure of debt-oriented MFs to corporate bonds, that were downgraded in the last six months, increased marginally from 1.6 per cent as at end September 2015 to 1.8 per cent as at end March 2016, the report said.