Mutual fund reach & B15 cities: Beyond 15, a lot to look for

As of February 2015, equity assets in B15 (beyond top 15) cities almost doubled from March 2013 to December 2014, while the MF industry saw a marked increase of folios from semi-urban and rural areas. According to the recent Association of Mutual Funds in India (AMFI) data, assets from B15 markets grew 14 per cent from Rs 1.89 lakh crore in January 2015 to Rs 2.16 lakh crore in January 2016, contributing 16 per cent to the overall industry assets under management.

Three years after the B15 regulation, contribution from B15 cities has slowly, but steadily, been on the rise. Who are these investors? Who are the distributors and advisors leading the change in these smaller markets? I decided to visit 20 such markets to meet and interact with the investors and advisors. We identified a combination of major cities progressing on fast-track, while also including cities now covered under Smart Cities Plan. Kerala, Tamil Nadu, the north eastern states, Punjab, Rajasthan, Bihar, Jharkhand, Uttar Pradesh, Maharashtra and Madhya Pradesh were among the states visited, covering cities such Patna, Bodhgaya, Ranchi, Guwahati, Siliguri, Ludhiana, Kanpur, Amritsar, Nagpur, Jaipur, Kozhikode, Ambala and Shimla, among others. By the time I concluded the journey across the smaller markets, I had personally met with people across 30 markets.

The journey of discovery

In Kerala, the receptivity to ideas and appreciation of quality dialogue within the advisor community, be it in Kochi, Thiruvananthapuram, Kottayam or Thrissur, was striking. IFAs (Independent Financial Advisors) were keen to understand not only how money is managed in mutual funds while investing in equity and debt markets, but also learn about processes in investing which help drive generate return. It may be argued: Is such a depth necessary? After all, how does it matter as long as one is able to take care of investor money in the best possible manner? The IFA plays an important role as a partner and advisor to his investor’s wealth creation journey. Having a deeper understanding of the process of money management strengthens not only his own conviction of the category, but also helps him advise the investor with greater confidence.

I saw this hunger for knowledge here. The seriousness in providing knowledge-based input to customers was quite evident. One thing that remained constant was the audience’s seriousness to learn about developments in the financial markets, and learn more. In an industry where Maharashtra alone accounts for over 40 per cent of the industry AUM (assets under management), followed by Delhi/ NCR and Karnataka, such commitment coming from non-metros, smaller cities, and semi-urban towns is a sign of the potential which can fuel growth of the industry’s customer base.

Common sense approach

It is widely known that equity MFs made a strong comeback last year. While a good percentage of these were in SIPs (systematic investment plan), a large part of these AUMs were advisory-based. The depth of an advisor’s expertise in the science of investing (equity investing in this case) works in favour of his investor. Investing in equity is all about identifying companies on the basis of their strategy, to deliver returns substantially.

Walking the audience through turnaround stories of firms across sectors, we probed them for likely reasons which would have worked for these organisations. In their responses, I saw how the power of common sense can influence decision making. It reminded me of one of Peter Lynch’s philosophies of identifying firms purely on the basis of consumer interest to their products or services. Advisors could highlight all the possible reasons due to which those companies have done well. While their reasoning varied from sector to sector, it was consumer behaviour in real life situation which reflected in their responses. I found their understanding of financial products to be very encouraging. They showed a good understanding of equity investing. A key takeaways was the insights gleaned while interacting with such audiences — the advisor community who is on ground. The richness of this experience made me realise that there is no alternative to the first-hand pulse which is far superior to any survey findings generated using different types of polling.

Investor expectation

Investors across different cities came up with nearly the same questions. Their most common themes were: How do we deploy our retirement money? How do I plan my pension? How do we plan for children’s education? How do we go about investing? While it is well known that mutual funds offer products to meet wide needs of Indian savers, however, they are communicated as individual products but not as solutions.

Interacting with investors from non-metros, I got the sense that they are looking for solution, and not necessarily a product. It left me thinking about the scope for MFs to be redefined through a bundle of value added products. MF products through a bundled approach can easily provide solution to such consumer needs. Even distributors who are solution providers had similar questions and observations. A large percent of such questions came from people who had retired in some parts of the country, but had now settled in these locations. Such questions clearly indicated the potential for fixed income schemes of mutual funds playing a significant role in fulfilling such needs. Taxation is something not understood clearly from the point of generating extra income in hand.

Summing up

As you travel to the interiors, you realise the true potential both in terms of availability of money for investing, as well as openness to learn and explore among other things. It was encouraging to see the high-level of optimism around the economic activities irrespective of the level of conviction on the direction of the government. They do give importance for the sun rise and the sun set as it has huge impact on their daily activities other than investing as well. It was refreshing to note that the scepticism that comes in the market and its reflection in the Sensex movement, do not exist in these locations given the fact that they take each new day as it comes, and progress forward.

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