ManagementNew MFs to look beyond cities
Funds will have to launch products tailor-made for semi-urban, rural markets.
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Entering a crowded space where big players account for a disproportionately large chunk of the market, new mutual funds are setting their sights on the hitherto ignored semi-urban and rural markets.
A number of mutual funds which plan to set up shop over the next few months say they see non-urban markets as a big growth opportunity.
“While we cannot ignore the urban market, we have a strong semi-urban and rural presence that we will definitely exploit,” said L&T Finance Senior Vice-President N Sivaraman. L&T Finance, the captive finance arm of engineering and construction major L&T, recently announced its entry into the mutual fund business with acquisition of DBS Cholamandalam Asset Management.
Mahindra Finance, the non-banking finance arm of the Mahindra Group, also plans to tap its existing customers, most of whom are based in non-urban areas. “You won’t necessarily see us competing with other AMCs (asset management companies) in the urban market. Our focus will be the semi-urban and rural market and we will design products which suit that market.” said Mahindra Finance Managing Director Ramesh Iyer.
Another non-banking finance company with a strong presence in non-metros, Srei Infrastructure Finance, plans to launch a mutual fund business and has got the approval of the Securities and Exchange Board of India.
“We already have a strong presence in rural markets due to Srei Sahej, our e-governance project. The rural market will definitely be one of our focus areas,” said Srei Infrastructure Finance CMD Hemant Kanoria.
Of the 39 existing players in the mutual fund space, the top 10 account for 82 per cent of the total assets under management (AUM) as of November 30, 2009, according to data by the Association of Mutual Funds of India (Amfi). The five largest fund houses — Reliance Mutual Fund, HDFC Mutual Fund, ICICI Prudential, UTI MF and Birla Sun Life — manage 57 per cent of the industry’s total AUM.
“Since mutual funds have reached a good level of penetration in the urban market, the only way to go is semi-urban and rural. There is good opportunity there since a bulk of bank deposits come from rural India,” said Sivaraman. “The semi-urban and rural space is a very attractive market for us. Our new fund offering (NFO) saw money come in from 146 locations,” said Rajiv Anand, CEO of Axis Mutual Fund. “The advantage we have as a bank-sponsored fund is that touch points already exist. To build these from the scratch would have been difficult and costly,” Anand said. Axis Mutual Fund launched its first fund in October this year and manages assets worth Rs 1,472 crore.
However, entry into non-rural markets will be no cakewalk for AMCs. Not only will they have to come up with products tailored for these customers, they will also have to educate investors about mutual funds.“We have to find something that works for them. Customers from rural markets may not understand and be comfortable with investment in equity. AMCs will have to create products especially for them,” said L&T Finance’s Sivarman.
According to Sivaraman, products like pure debt funds, capital protection plans and balanced funds are likely to be more popular among these investors.