India, a rising superpower with burgeoning metropolises is seeing a flurry of growth in equity investment from new and upcoming cities. According to Business Standard one out of every five rupees in the domestic Rs 12 lakh crore mutual fund (MF) sectors now belongs to investors in smaller cities. Assets under management (AUM) from beyond the top 15 cities (B15 cities) have ascended over double the pace of overall segment.

So, what is the reason for this stupendous growth?
Well, an increasing number of Indian investors are now aware of the benefits of investing in mutual funds. The growth of urban centres has facilitated more Indians to mobilise their savings into equity as an asset class for its trait of creating wealth over the long run. Also there appears to be a paradigm shift from the traditional Indian risk-averse mind-set during periods of risk-on and exuberance. The Modi-led-NDA Government’s vision to start 100 new cities is also a testament to the growth of Indian urbanization.

However it is surprising to see that investors from these B15 cities have a riskier asset allocation than the investors from major urban centres. Nearly 44% of the assets from these centres are in equity schemes, up from 42% in May 2014; while only 28% of the assets from the top 15 cities are in equity-oriented schemes.

With Mr Modi at the helm the Indian equity market has delivered stunning returns over the last one year as electorates rest hopes on “Acche Din” or a better tomorrow. The positive investment sentiment has also led mutual fund houses expand their distribution channels and have resorted to educating investors through various ways.

In 2012 SEBI had permitted Asset Management Companies (AMCs) that have managed to bag 30% of their total annual inflows from places beyond top-15 Indian cities (B15 cities) to charge an additional 30 basis points (bps) expense ratio. The 30 bps would be charged on the entire fund, in a way, making existing investors and investors residing in top cities to pay for new investors from the hinterlands. This, in effect has also helped mutual funds widen their base and revitalize the Indian mutual fund industry.

The outlook for growth of the Indian Mutual Fund industry...
It is likely that the next phase of growth in the mutual fund industry would come from the B15 cities. As the Top 15 (T15) cities already constitute a large chunk of the industry and are aware of the benefits investing in mutual funds, the focus would now shift to acquire assets from beyond T15 cities given the tremendous growth potential. But in this endeavour, mutual fund houses would need to continue educating investors prudently in an unbiased way, which can build the confidence of investors towards mutual funds.

The people living in these cities would soon want to invest their savings in order to meet their aspirations or financial goals of buying a dream home, a car or educating their children well, getting them married, just as the ones in India’s bustling metropolises. The Indian mutual fund industry is still under-penetrated and there is tremendous potential for growth.

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