MFs struggle to crack B30 code, shares remain in 15-17% range of AUM

Industry players say improving the penetration beyond the top centres will require setting up more branch networks and empanelment of distributors.

The assets under management (AUM) for domestic mutual funds (MFs) have grown at a good clip, but the industry has failed to make significant inroads in the hinterlands.

At the end of March 2021, the AUM from T30 (top 30) cities stood at Rs 26.07 trillion, while that from the so-called B30 (beyond 30) cities stood at just Rs 5.36 trillion.

The share of B30 cities has remained in the range of 15-17 per cent of the AUM since FY19.

Industry players say improving the penetration beyond the top centres will require setting up more branch networks and empanelment of distributors.

Further, the industry will have to focus on investors’ education and the creation of more infrastructure.

Market participants say barring a few top players, the industry may not be able to afford this.

“AUM growth in B-30 cities does not commensurate the cost one incurs to improve the penetration.

"To improve growth of the industry in B30 cities, the industry needs to have a larger focus on investor education in local languages,” said Jimmy Patel, MD and CEO at Quantum AMC.

In 2018, the Securities and Exchange Board of India (Sebi) had changed the incentive for the industry for mobilising assets from smaller centres.

The market regulator allowed fund houses to charge an additional total expense ratio (TER) of up to 30 basis points for inflows from beyond the top 30 cities.

Earlier, the incentive was on assets gathered from beyond the top 15 cities (B15).

While the earlier structure spurred the industry to grow in B15 cities, cracking B30 cities has proved challenging.

Ajay Tyagi, chairman of Sebi, while addressing the AGM of MF industry body Amfi in 2020, had said: “The share of B30 cities in the total industry AUM has hovered around just 15-17 per cent over the last four years.

"We need to strive more to make mutual funds popular in areas beyond the top 30 cities.”

Of the 97.9 million folios as of March 31, around 56.5 million folios are from T30 cities and 41.4 million are from B30 cities.

A folio is a unique number to identify investor holdings with his/her respective mutual fund.

The unique number differs from fund house to fund house, and one investor can have multiple folios.

The average ticket size of the retail segment in B30 towns is about Rs 104,000, while in T30 cities, it is about Rs 230,000.

The average ticket size of the industry as a whole (retail as well as corporate) is about Rs 321,000.