SIP soars beyond city limits: Small towns lead in account additions

Mutual funds (MFs) are seeing higher growth in new systematic investment plan (SIP) accounts in rural areas (beyond 30 or B30 centres) compared to the top 30 (T30) cities.

However, the average inflows from these areas remain significantly lower than those from the larger centres.

Data from the Association of Mutual Funds in India reveals that investors from B30 contributed Rs 1,725 on average to MFs through SIPs, which is 70 per cent lower than the average ticket size of T30 investors at Rs 2,940.

In October, B30 investors made a gross investment of Rs 6,436 crore through 37.3 million SIP accounts.

At the same time, 35.7 million T30 SIP accounts brought in Rs 10,492 crore for MFs.

SIP account additions and SIP inflows from B30 have been growing at a faster pace than from T30.

Between May and October 2023, the SIP flows from B30 have increased by 26 per cent to Rs 6,436 crore, compared to a 22 per cent growth in T30.

At the same time, the active SIP accounts from B30 have overtaken the T30 tally, surging 17 per cent from 31.7 million at the end of April 2023 to 37.3 million at the end of October.

MF executives say B30 is showing better growth owing to rising awareness and growing acceptance of new-age investment options.

"We are witnessing two things simultaneously after the pandemic.

"The first is a shift to financial assets, and the second is the beginning of the penetration of MFs into the smaller cities of India through the SIP route.

"This is indeed a very healthy sign, as more Indians will participate in the growth story of India through the capital markets,” said Swarup Mohanty, vice-chairman and chief executive officer of Mirae Asset MF.

However, the sharp surge in B30 SIP accounts has pushed the ticket size lower.

In November 2021, the B30 ticket size stood marginally higher at Rs 1,757 compared to Rs 1,725 in October 2023.

In comparison, the T30 ticket size has gone up in the past two years from Rs 2,794 to Rs 2,940.

Smaller towns are drawing more MF attention owing to their higher scope for growth.

In the past year or so, fund houses have opened up numerous branches in these areas.

They have also augmented their distribution strength through tie-ups with individual distributors and banks.

However, the industry’s B30 plans took a hit in March 2023, with the Securities and Exchange Board of India pausing the B30 incentive structure, which allowed fund houses to dole out higher incentives to distributors bringing investors from B30.