With an outreach of net banking for transactions, app-based investment options and online application support, it is time for the mutual fund (MF) industry to look at tier two and tier three towns’ service classes, small businessmen and self-enterprises for long term systematic investment plans (SIPs) through distribution and direct platforms.
At a recent industry event, Securities and Exchange Board of India (SEBI)’s whole-time member G Mahalingam also said that the MF industry needs to look beyond the top 10-15 cities for tapping new investors, which will help asset management companies to grow.
It is worth mentioning that, for MFs to expand beyond the top 30 cities in India, SEBI has classified the next 30 cities as ‘B30’ since 2017.
However, the markets regulator does not seem to be pleased as, since March 2019, the contribution in assets of the B30 cities has stagnated in that range of 15-16 percent of gross assets under management (AUM).
Whereas, since April 2018, SEBI has allowed additional 30 bps expenses for MF expansion in B30. The share of next 30 can grow in the overall pie to a substantial number.
India’s mutual fund industry is just one-fourth the size of the banking industry. SEBI believes that the mutual fund industry has the potential to surpass it. Bank deposits in India during December 2019 stood at an approximate Rs 130 lakh crore.
“Even if we manage to reach the size of 50 percent of the banking deposits in the country, the size would be huge. At the moment we are just around Rs 28 lakh crore which is one fourth the size of the banking industry,” Mahalingam said.
The industry has grown exponentially in the last 14 years. From AUM of approximately Rs 1 lakh crore, it has touched Rs 28 lakh crore in the last 14 years. SEBI wants the industry AUM to touch Rs 100 lakh crore.
The mutual funds industry gets around Rs 8,000 crore every month through investments. However, the number of people investing in it account for just 2-3 percent of the total investing population.
There has however been an increase in the proportion of mutual fund investments in overall household assets from 10 percent to 13 percent over the last two years.
In the last five years, there has been an almost 21 percent growth in CAGR of MF assets.
The regulator feels that the present three crore-investor figure in the MF industry is very small compared to the potential the industry has.
With SEBI staying actively engaged in several new initiatives including investor awareness, the tidal wave in the favour of financialisation of household savings is bound to get stronger.
“The market regulator also wants the industry to figure out ways to attract customers in newer cities. There is a need to reimagine consumer experience, use data and technology to understand how to cater to newer customers more effectively,” Mahalingam said.
The affordable net connectivity facilities in tier two and tier three towns, the millennial generation that stays digital, the app-based investment platform of the likes of BSE Star MF, Groww and Zerodha, among others, will enable fund houses to reach wider to next 30 cities.
Long-term savings being the MF mantra, the younger net-savvy generation is where the green shoots of the MF industry are.
Financialisation of savings is more acutely needed in smaller cities. As per surveys, the top 10 cities have more financial assets in percentage, whereas smaller town families have more percentage in gold and real estate of their total savings.
The most liquid assets being financial assets, there is a much larger scope to expand in small towns than what is covered by the MF industry so far.