Lack of financial sophistication hits MF industry: SEBI

Presence of MFs is heavily skewed in favour of 60 districts, out of which a lion’s share originates from Mumbai, SEBI says

February 21, 2014 11:13 IST | India Infoline News Service
The Indian mutual fund industry is one of the fastest growing and most competitive segments of the financial sector, according to a SEBI (Securities and Exchange Board of India) report released on Thursday.
As of August 2013, the total AUM stood at Rs. 7.66 trillion. However, growth rates of AMCs have come down from the peak levels seen in the early 2000s. One of the biggest reasons behind this is the lack of healthy participation from a large part of the country, the report added.
The report, part of the Development Research Group Study, under the title "Penetration of Mutual Funds in India: Opportunities and Challenges", is co-authored by Prof Rajesh Chakrabarti, Sarat Malik, Sudhakar Khairnar and Aadhaar Verma.
The AUM are unevenly distributed across the country. Presence of MFs is heavily skewed in favour of 60 districts, out of which a lion’s share originates from Mumbai.
The study argues that lack of penetration may be due to low demand of MF from the public outside the top 15 cities (T-15). This may be due to low level of financial literacy, cultural attitudes towards savings and investments, etc.
Further, low supply of Mutual Funds outside the major cities may be on account of perceived lack of demand from general retail investors or due to lack of available manpower.
The distribution costs as a function of AUM generated in the top districts are far higher than in the lower districts.
The study reports that demographic and social development factors such as adult literacy, bank penetration (Savings accounts) do not show strong co-relation with mutual fund presence.
As per the survey, the main concern raised by fund houses on lack of their presence outside T-15 cities was lack of good talent for training and hiring mutual fund agents.
The major concern is also about investor awareness and the lack of financial sophistication outside T-15 cities.

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