Mumbai: In spite of a massive 20 per cent annual growth in the asset management industry in the past four years from Rs 6.65 trillion in 2012 to Rs 11.89 trillion in 2015, share of the top 15 B-class cities is at 14-16 per cent, says a McKinsey report.
Though the beyond B15 market is about 53 per cent (35,584 registered independent financial advisors or IFAs), only a third of them are productive which may be defined as having average assets of more than Rs 50 lakh.
However, this 53 per cent contributed to only 28 per cent of the retail IFA channel assets under management in FY15, according to the report released here today.
B15 cities contribute to 84 per cent of bank branches, but only 10 per cent of the banking channel AUM, it added.
Brokers do not perceive selling mutual funds in B15 markets as an economically attractive proposition, which also
limits distribution, the report noted.
Commission payout in these B15 locations, individual IFAs can only expect to earn a little over Rs 4 lakh per annum in B15 locations against over Rs 21 lakh per annum in the T15 locations, the report said.
Sebi has capped the maximum commission that AMCs can pay up front to distributors at 100 bps, additional incentives provided to distributors in smaller towns are exempt from this cap.
The impact of these regulatory incentives, however, is yet to be fully captured in the market, it stated.
Sebi regulation allows AMCs to charge an extra 0.3 per cent to total expense ratio (TER) if they garner 30 per cent flows from B15 cities, with a proportionate charge-back in case of less than 30 per cent flows is a step in the right direction to resolve the incentive issue for AMCs, it stated.
The study suggested developing a new set of distributors IFAs so that the mutual fund industry grows evenly.
Apart from empanelling existing IFAs, AMCs should also explore creative ways to incentivise or develop fresh IFAs, especially for the smallest cities, says the study.
This could include holding educational and awareness programmes as well as setting up training institutes, it stated.
"The split up of AUM suggests that close to 72 per cent of the investments comes from top 5 cities and from the remaining, close to 14 per cent comes from the next 10 cities.
"Significant difference in retail flows of large, medium and small companies are witnessed in terms of market penetration," McKinsey partner Peeyush Dalmia said.
"Private equity investments, ETFs, portfolio management services and REITs can be sighted as alternative market to grow further.
"By providing better services, the industry can look at shifting customers to digital channels," he said in the report.
