Smaller cities contribute 50% of new mutual fund folios

Nearly half of the new investors added to the mutual fund industry are from smaller cities, and this addition is growing steadily every month.

As per a study by Zerodha Fund House, the mutual fund industry has added 2.3 crore folios between April and August, out of which over 50 per cent are from smaller cities.

However, smaller cities still account for only 19 per cent of the overall assets under management (AUM) of the mutual fund industry.

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The average ticket size of the retail segment in smaller cities was about ₹1.13 lakh, while the combined average ticket size of the retail segment for (T30+B30) was about ₹2.04 lakh.

This indicates that while more individuals from these regions are participating in investments, the average investment size may still be lower compared to those from larger urban centres. These smaller cities are classified as B-30 cities (beyond top 30 cities) by the Association of Mutual Funds in India.

As of last month, about 54 per cent of all the SIP accounts in the mutual fund industry were contributed by investors from smaller cities.

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Smaller cities have a larger number of SIP accounts, reflecting a greater penetration of investments in less urbanized areas.

In the last five months, the growth rate in the SIP accounts in smaller cities for Index Funds (19 per cent) is higher than the growth rate of any other category in the industry. Altogether, about 79 per cent of the SIP accounts from smaller cities are contributed by growth-oriented and equity-oriented schemes.

The rise of smartphone apps, direct investment platforms, digital payment systems, and industry initiatives has led to more than 50 per cent of all the new investors in smaller cities investing through direct plans.

Vishal Jain, CEO of Zerodha Fund House, said, “I strongly believe that simple, transparent, and affordable products will help individual investors design better financial futures. Index-based products exhibit all these qualities.”