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Small-town India makes most of equity rally, invests big in MF

Nagpur is on top in terms of maximum gain in AUM share — from 0.46 per cent in June 2020 to 1.02 per cent in June 2021. Patna, Jamshedpur, Asansol, Aurangabad and many more have seen a jump in their share of industry AUM.

Written by Sandeep Singh | New Delhi |
Updated: September 17, 2021 5:27:09 am
City-wise assets under management (AUM) data of mutual funds show a sharp jump in MF investment from smaller towns.

Together with investors in big cities, those in smaller towns seem to be making the best of the equity market rally in the last 12 months.

City-wise assets under management (AUM) data of mutual funds show a sharp jump in MF investment from smaller towns.

The latest Association of Mutual Funds in India data shows that over the last one year, towns outside the country’s top 110 cities saw their share in industry AUM jump from 10.21 per cent in June 2020 to 15.44 per cent in June 2021 — a 50 per cent surge.

In June 2018, the share of these locations — bracketed as ‘other cities’ in the AMFI data that cumulatively account for towns and hamlets outside its list of 110 top cities — in industry AUM stood at just 8.7 per cent.

This indicates that the fresh net inflow of funds from small cities is growing at a much faster pace in comparison to the large cities. While the industry AUM rose 32 per cent from 25.48 lakh crore in June 2020 to Rs 33.66 lakh crore in June 2021, the aggregate AUM of ‘other cities’ doubled from 2,60,237 crore to Rs 5,19,845 crore in the same period.

Industry insiders say there has been growing investment participation from places such as Jhumri Telaiya, Tezpur, Gangtok, Vellore, Srinagar and more investments are coming in from semi-urban and rural areas.

Explained

And this is why

experts are pointing to falling interest rates on fixed deposits, rising equity markets and ease of investment as likely reasons for people from small towns investing heavily in mutual funds.

Experts say that falling interest rates on fixed deposits, rising equity markets and ease of investment are playing a big role in pulling investors from smaller towns towards mutual fund investment. Also, the hinterland was largely unaffected in the aftermath of the first Covid-19 wave and agri output had remained buoyant to a large extent when urban centres were being impacted by the lockdown

In the list of the top 110 districts, while the share of Mumbai (the single biggest AUM contributor) has declined from 36.5 per cent in June 2020 to 31.16 per cent in June 2021, that of New Delhi has dropped from 13.69 per cent to 12.55 per cent.

Nagpur is on top in terms of maximum gain in AUM share — from 0.46 per cent in June 2020 to 1.02 per cent in June 2021; Dhanbad comes at fifth position as its share in industry AUM rose from 0.12 per cent to 0.18 per cent in the one-year period. Cities such as Patna, Jamshedpur, Asansol, Aurangabad and many more have also seen a jump in their share of industry AUM.

“The equity story has caught up and people are investing. The availability of number of online investment platforms, rise in equity markets and lack of other attractive investment avenues are leading to this kind of participation even from semi-urban areas,” CJ George, MD, Geojit Financial Services, said.

While new investors are also coming in, the bigger trend is that of existing investors, who have seen the benefits of investing, allocating more funds. Industry leaders give credit to regulators for regulation, industry association for creating awareness, distributors for explaining it to the investors, and digitisation for ease of transaction.

“While ‘Mutual Fund Sahi Hai’ campaign has worked well for the industry, the positive experience sharing through word of mouth has done a lot of good,” said Nilesh Shah, MD, Kotak Mahindra AMC. He said if the bad experience with Ponzi schemes dissuaded people from such investment options, the industry’s effort to reach out to investors through distributors and explain MFs has worked well.

While it is tough to explain equity investment to many investors in small towns and rural areas, Shah said, “I know that some of the distributors in Jharkhand and other states carry their mutual fund statement with them to show how the SIP investment has grown. In many cases, they also started SIPs of their drivers and maids. And when they go and share their investment return experience in the neighbourhood, it creates a lot of impact.”

Aniruddha Chaudhuri, head retail sales at ICICI Prudential AMC, said that along with regulation, awareness campaign and investor experience, digitisation has also played a big role. “There is a lot of money in Bharat. Earlier, people were not aware that it is so easy to invest. Over the years, the trust has been built and the convenience to invest has also played a big role,” Chaudhury said, adding that the ‘Mutual Fund Sahi Hai’ campaign too has created a big impact.

Industry participants feel that SIP investment from smaller towns is also more stable. “While big-ticket investors in metros are also looking at PMS, alternative investment funds, direct stock investment, exchange traded funds, and go for profit booking thinking that the market would correct, the small investor from a small town is diligently investing through SIP,” Chaudhuri said.

Some estimates show that while top 30 cities (T30) accounted for a large majority of fresh SIP flows almost two years ago, the gap with cities outside top 30 (B30) has come down significantly. In July, the share of B30 cities in fresh SIP counts rose to 44 per cent and is fast closing the gap with T30 cities that account for 56 per cent of fresh SIP counts, an industry insider said.

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