70% assets of fund houses come from only 5 cities: AMFI

Fund houses in India have failed to reach investors in smaller cities or rural areas

June 28, 2012 12:15 IST | India Infoline News Service
Over 70% of the assets under management (AUM) of mutual fund companies come from only five cities in India, according to the Association of Mutual Funds in India (AMFI) data. The five metro cities include Mumbai, New Delhi, Bengaluru, Kolkata and Chennai which contributed Rs. 46.5 million AUM.

The data indicated that fund houses in India have failed to reach investors in smaller cities or rural areas. Fund houses launch mutual fund schemes while these are sold by intermediaries like independent financial advisors, financial planners and banks among others. In 2009, capital market regulator SEBI (Securities and Exchange Board of India) had banned the entry load—a fee charged to investors at the time of investing.

Vivek Chaurasia, senior research analyst, PersonalFN, said, “To compensate distributors for their service cost, SEBI in August 2011 allowed fund houses to deduct transaction charges from mutual fund investments made by investors and pay to distributors. The fund houses are now allowed to deduct and pay the distributors a sum of Rs. 150 as transaction charge per subscription for new investors and Rs. 100 for existing investors.”

Mr Chaurasia elaborated, “In case of SIP (systematic investment plan), the transaction charge is applicable only if the total commitment through SIP amounts to Rs. 10,000 and above. The transaction charge of Rs. 100 is not deductible every time the SIP transaction is processed, but it is deducted and is payable in four equal installments (from the second to the fifth installment) where the total SIP commitment value is Rs. 10,000 and above. The net investment by the investor is equal to total investment less transaction charges and is also reflected in the account statement.”

Pankaaj Maalde, head-financial planning, ApnaPaisa.com, said, "If the distributor has not opted for the option to deduct transaction charge from mutual fund investments made by investors, then investors will not be charged any transaction charge even though the investment amount is above the prescribed limit (Rs. 10,000).”

Mr Maalde pointed out, “Almost 90% of distributors have not opted for deduction of transaction charge for mutual fund investments made by their clients.”

As a result, in the past two-three years commercial interest of distributors has come down, and they are not motivated to selling mutual fund schemes. In smaller cities, the awareness about mutual fund schemes and personal finance is less. There have been cases of mis-selling due to which people in smaller cities and rural areas are unwilling to invest in mutual funds.

In smaller cities the average ticket size of investment is around Rs. 50,000 and a distributor has to travel around 50km to reach investors. Thus, it becomes difficult to sell mutual fund schemes.

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