In changing investment geography, 'other cities' share in MF assets rises

Their share is six times higher than it was in March 2012

Small is big money. Cities that individually have a modest share in mutual fund assets (less than 0.05 per cent) now collectively add up to nearly a fifth of assets.

Data from the Association of Mutual Funds in India (AMFI) categorises cities beyond India’s top 110 in terms of share of mutual fund (MF) investments as ‘other cities’. Other cities accounted for 2.66 per cent of total assets in March 2012. Their share has increased to 17.23 per cent, shows an analysis of December 2022 data. Citing malpractices, the Securities and Exchange Board of India recently reduced incentives for investments from smaller cities. The share of the top 30 cities (T30) has for some years been stagnant at around 83-85 per cent. The share of the beyond top 30 cities (B30) is stuck at around 15-17 per cent. Distribution is shifting towards smaller cities within the B30 fold as seen in chart 1.

The metro cities have been losing market share. Mumbai, New Delhi and Bengaluru collectively accounted for the majority of MF investments till the pandemic. The three cities had a collective share of 53.59 per cent in March 2020. After the pandemic, the source for the majority of investments moved out. The trio collectively account for 47.3 per cent share as of December 2022. Each of the big three has a lower share in MF assets now than they did in 2019.

Maharashtra and New Delhi are the only places with a large share of mutual fund investments relative to the size of their economies. Mutual fund assets in New Delhi are the equivalent of 43 per cent of the city-state’s economy as measured by the place’s gross domestic product (GDP). It is 60 per cent for Maharashtra because of Mumbai, where a large number of companies are headquartered and Goa is third with 29 per cent. Karnataka, which has Bengaluru as its capital, is sixth with 17 per cent.

Numbers for other states show the mutual fund investments have ample room to grow. Around 21 out of the 30 places considered for the analysis had investments which were less than 10 per cent of their GDP. The bottom five states, by that measure, are in India’s northeast. Sikkim, Arunachal Pradesh, Mizoram, Tripura and Manipur each had less than five per cent MF penetration.