Where are mutual fund investments coming from?

Mutual Fund investments from tier II towns are gaining pace.

Assets under management for the mutual fund industry have averaged a compounded annual growth rate of 24.5 percent over the last five years, while the top five cities still account for 52 percent share of the total AUM, a Moneycontrol analysis shows that growth is being led by Tier-2 towns.

In fact, data from the Association of Mutual Funds in India, shows that 18 percent of the assets of the mutual fund industry came from beyond the top 30 cities in May 2024, compared with 16 percent in March 2020.

“Assets under management (AUM) of B-30 cities grew from Rs 5.12 lakh crore in March 2019 to Rs 14.14 lakh crore in March at a compounded annualised growth rate (CAGR) of 22 percent compared with T-30 cities, whose assets grew from Rs 17.66 lakh crore to Rs 37.20 lakh crore at a pace of 16 percent during the period. The share of B-30 cities has grown from 21.5 percent in March 2019 to 26.3 percent,” said Piyush Gupta, director of fund research at CRISIL Market Intelligence and Analytics.

A city-wise break up shows that the share of top five cities in AUM tally has declined 20 percentage points.

In fact, none of the top eight cities—Mumbai, Delhi, Bengaluru, Pune, Kolkata, Chennai, Ahmedabad and Hyderabad—could match the growth of AUM across the country.

But, besides the top five cities, 86 of 104 cities had an AUM growth higher than the national average.

Among these, Gandhinagar and Dhanbad recorded an annual growth of 48 percent each year, whereas Bilaspur, Chhattisgarh, Panvel, Maharashtra, Thrissur, Kerala, Ajmer, Rajasthan and Gwalior, Madhya Pradesh grew at 40 percent per annum.

Thirty six of the 104 cities, analysed by Moneycontrol for period between March 2024 and March 2020, recorded an over 33 percent growth per annum.

However, the size of market is still lower in these geographies. While Mumbai’s total AUM as of end March 2024 was Rs 14.3 lakh crore, that of Gandhinagar was Rs 7,476 crore, Patna was Rs 20,293 crore and Jaipur was Rs 44,234 crore.

Patna, the capital of Bihar, witnessed a growth of 33.2 percent per annum during this period.

“Mutual fund penetration has been steadily improving in smaller towns and cities backed by increasing awareness among people, the growing interest among retail investors for investing in equities through the mutual fund route and the opening up of branches of AMCs (asset management companies) beyond the top 30 towns,” said Ashwini Kumar, senior VP and head of market data at ICRA Analytics.

“The burgeoning middle class and rising financial literacy is prompting more and more people to resort to financial planning so as to accrue savings, particularly through the SIP (Systematic Investment Plan) route,” he added.

Thirty-four cities had an AUM of over Rs 10,000 crore and above as of March 2024, compared with just 16 in March 2020.