Smaller Cities Account for 50% of New Mutual Fund Folios
India are contributing significantly to the growth of the mutual fund industry, with 50% of new folios being added from these regions between April and August 2024. Despite this impressive growth, these cities still represent only 19% of the overall assets under management (AUM) in the mutual fund sector.
The mutual fund industry has added 2.3 crore new folios through this period, of which half have come from smaller cities commonly referred to as B-30 cities, beyond the top 30 cities. Areas beyond the top 30 are increasingly becoming an important source of new investors in the industry.
While the number of folios from smaller cities is rising, the average ticket size from these places is still lower as compared to bigger urban centres. The average ticket size in the retail segment for small towns was around Rs 1.13 lakh, while the combined average for retail investors across both top cities and small cities (T30+B30) was approximately Rs 2.04 lakh. This means that even though investor participation has picked up in smaller cities, investment sizes have declined correspondingly.
The contribution of smaller cities to the mutual fund industry is quite noteworthy in the SIP segment. At the end of last month, a whooping 54% of all SIP accounts in the mutual fund industry were from investors of the smaller cities. This now shows a growing penetration of investment culture within less urbanized regions where SIP accounts are becoming the popular investment tool.
From Tier 2 and Tier 3 cities, SIP accounts have grown at a far higher rate than the rest of the industry over the last five months. Index Funds have been the favorite among those in Tier 2 and Tier 3 cities, with the SIP account growing at 19%. In fact, 79% of the SIP accounts from Tier 2 and Tier 3 cities are taken up for growth-oriented and equity-oriented schemes.
This rise in technology, which comprises smartphone apps, direct investment platforms, and digital payment systems, has played a very important role in encouraging investors from the smaller cities into direct plans. More than half of the new investors from such cities prefer to invest directly, bypassing the intermediaries and opting for cost-effective solutions.
It is also realized by the mutual fund industry that it must provide simple, transparent, and affordable investment products to serve these emerging markets. Index-based products also help bring clarity and accessibility; hence, they appear attractive to new investors seeking long-term financial security.
Growing participation by smaller cities in the mutual fund industry is a positive trend toward increased financial inclusion. The challenge, however, remains to enhance average investment size and the AUM contribution from these regions.
