Dun & Bradstreet India’s Leading BFSI Companies 2017

Shift in focus to B15 to provide growth opportunities of the industry

Source: AMFI

Retail investors in India are heavily dependant on the distribution channel companred to investing directly. As of November 2016, 92% of the retail investors invested through distribution channels. A study by AMFI brought to light that the inflow of funds received by asset management companies in India were heavily skewed towards the top 15 cities in India. The lack of adequate distributors selling mutual funds in semi-urban and rural regions, infrastructure constraints, subdued awareness, and lower average ticket size were identified as the major cause of the skew. In 2012, in an attempt to include the B15 region, SEBI allowed fund houses to charge an additional 30 basis points in the total expense ratio if new inflows from B15 cities were at least 30% of gross new inflows in the scheme or 15% of the average assets under management, whichever is higher. This development incentivised asset management companies to focus on B15 regions as fullfilling this criteria enables asset management companies to increase their revenues by charging higher fees. Therefore, many of the asset management companies incentized their agents to garner revenues from B15 regions. These continued efforts have resulted in AUM contribution of B15 witness a growth of 32.4% for the period November 2015 – November 2016. This growth was significantly higher than the growth registered by AUM contribution by T15 cities and AUM overall of 25.0% and 26.1% respectively for the same period. Low level of financial literacy continues to hinder the growth of mutual fund industry The penetration of mutual funds, especially in semi-urban and rural places is significantly hindered by the lack of understanding of mutual funds and their operations. In order to address this concern, asset management companies have been conducting investor awareness programs. In FY16, 38 AMCs had conducted 10,816 programs in 254 cities. In addition, efforts to educate retail investors and channelinse their savings towards mutual funds have also been undertaken by AMFI and SEBI. Exploring new frontiers In 2016, SEBI issued guidelines to change the existing norms for investing in mutual funds. The traditional KYC process was lengthy and cumbersome. The revised guidelines allows for Aadhaar-based process for fulfilling KYC requirements to start investing in mutual funds. This new development is an investor friendly process which is expected to bring in new mutual fund investors. Leveraging the baking channel As of FY16, SCBs in India had 86425 branches in rural and semi urban areas. Furthermore, RBI has mandated banks with opening newer branches in these underserved regions of country to achieve financial inclusion ojectives and strenghtern its banking system. The lack of infrastruce in rural and semi urban areas acts as a major hinderance for asset managemnt companies in penetrating this market and creation of the required infrastructure would capital intenisve for them. Therefore, it would be wise for asset management companies to utilise the banking infrastructure in non-urban regions to educate and sell mutual funds. Introduction of investor friendly registeration process and increasing bank branches provide growth opportunities

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