Investors from outside the big cities in India are increasingly investing more in mutual funds
12-May-2017 •Kayezad E. Adajania
Backed by rising equity markets, investors from outside the big cities (beyond 15 or the B15, as they are called) in India are increasingly investing more in mutual funds. In the financial year 2016-17, the S&P BSE Sensex grew 16.88%. As per Association of Mutual Funds of India (Amfi, the mutual fund industry’s trade body) data, 17% of the assets of the mutual fund industry now belong to B15 locations (see chart: Growth in B15 assets). This is up from 16% a year ago. In March 2016, the assets from B15 locations stood at Rs2.18 trillion. This figure rose to Rs3.09 trillion in March 2017 - the average assets under management for the month of March 2017.
Beyond 15 towns
“We are seeing much better inflows from B15 towns over the last 12-18 months, especially in the last financial year, on an incremental basis. The growth of flows coming from these smaller towns has been much faster in pace than that of the larger towns. We expect this trend to continue,” says Sundeep Sikka, chief executive officer, Reliance Nippon Life Asset Management Ltd. But what type of funds are investors from B15 towns investing in? As per Amfi data (see chart: Balanced mix), 53% of their money was in equity funds in March 2017 (up from 49% in March 2016), while 47% lay in debt funds, down from around 51% last year.
Top 15 towns
The data shows, investors in top 15 towns (T15) appear to be drawn more towards fixed income funds, but there’s a caveat. A large chunk of assets that gets invested in mutual funds in T15 towns are from large, institutional investors who invest significantly in liquid and short-term debt funds. Amfi data also shows that 25% of individual assets are from B15 locations.
“Investor interest in mutual funds has definitely gone up in the last 2 years or so. One of the more obvious reasons is that other investments like gold, real estate and bank fixed deposits aren’t giving attractive returns,” says Datta Prabhakar Kanbargi, a mutual funds distributor based in Belgaum, which is a B15 town.
Even in B15 towns, distributors like Kanbargi are cautious and avoid putting all of their investors’ money in equity funds. “Even if our clients want to put aggressively in equity funds, we do their asset allocation. We test their risk appetite and then accordingly recommend; not just equity funds but a healthy mix of equity, hybrid and debt funds.”