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MF firms fail to reach non-metro investors

Despite the concerns raised for low penetration of mutual funds in India, asset management companies (AMCs) fail to reach investors in non-metro cities, according to the data from the Association of Mutual Funds in India (AMFI).

business Updated: Jun 28, 2012 00:15 IST
Sachin Kumar

Despite the concerns raised for low penetration of mutual funds in India, asset management companies (AMCs) fail to reach investors in non-metro cities, according to the data from the Association of Mutual Funds in India (AMFI). The data says 70% (or Rs. 465,300 crore) of the assets under management of mutual fund companies come from just five cities — Mumbai, New Delhi, Bengaluru, Kolkata and Chennai.

However, the Reserve Bank of India data shows that 60% of total deposits in India lie outside the above five cities. The top cities have just around 40% of India’s total deposits, it says.

"AMCs are the manufacturer of mutual fund products and they depend on intermediaries such as independent financial advisors, banks and others to reach investors," said Nikhil Johri, managing director, BNP Paribas Asset Management, India. "In the past few years, commercial viability of distributors has come down, due to which they are not bullish on selling mutual fund products." http://www.hindustantimes.com/Images/Popup/2012/6/28-06-biz6.jpg

In 2009, capital market regulator Securities and Exchange Board of India (SEBI) had abolished the entry load — a fee charged to investors at the time of investing. SEBI in August last year allowed mutual fund distributors to charge Rs. 100 as transaction charge per subscription from the existing investors and Rs. 150 from the new investor.

“Mutual fund companies need to take steps to increase awareness in non-metro cities,” said Ramesh Bhat, president of IFA Galaxy, an association of investment advisors. “Also, there have been cases of mis-selling with investors due to which they are unwilling to invest.”

Bhat added that in smaller cities the average ticket size of investment is around Rs. 50,000 and a distributor has to travel around 40-50 kilometers to reach the investors. Thus, it becomes commercially unviable to sell a mutual fund product, he said.