Mutual fund assets' overwhelming share from top cities continues to rise

Last Updated: Wed, Jan 30, 2013 06:57 hrs

Despite being allowed to charge extra fees in order to bring more assets from smaller towns and cities, the dependence of mutual fund (MF) houses on top cities to mop up funds, continues.

According to the latest statistics issued by the Association of Mutual Funds in India (Amfi), the proportion of assets from the top 15 cities have further risen in the October-December quarter. It was at the beginning of this quarter that the capital market regulator, the Securities and Exchange Board of India (Sebi), allowed fund houses to charge more if they pulled in more money from beyond the top cities.

For the third quarter in a row the proportion of assets under management (AUM) from the bigger cities, has risen. During the quarter ended December, as much as 87.7 per cent of total assets came from Mumbai, Delhi, Bangalore, Kolkata, Chennai, Ahmedabad, Pune, Hyderabad and Baroda, among other big cities. In the immediate previous quarter, the assets from these cities were 87.4 per cent of the total pie. In the April-June quarter, the figure was 86.95 per cent.

Rising proportion of assets from top cities
Quarter Proportion of AUM (%)
Mar 31 '12 85.16
Jun 30 '12 86.95
Sept 30 '12 87.43
Dec 31 '12 87.71
Source: Association of Mutual Funds in India

Sector executives say it would take at least three to five years to see the real outcome of the incentives provided by Sebi. Currently, it looks difficult, as several small fund players have either closed retail operations in small cities or shut these completely.

MFs need to reduce this number if they want to charge the extra 30 basis points in addition to the expense ratio that Sebi has allowed if the assets are garnered from beyond the top 15 cities. This has been made effective from October 1, 2012.

Sector officials maintain that garnering assets from smaller towns is not an easy task, as fewer distributors are willing to sell their products after the entry load ban in 2009. While the lack of awareness about MFs also hinders their efforts, officials said the incentive to push sales in smaller towns to gain this additional fee is limited. At present, a little over 40 entities in the segment manage a total sum of around Rs 7.5 lakh crore.

More from Sify: