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A study by Zerodha Fund House reveals that the number of new investor folios coming from smaller cities has been rising on a monthly basis. The mutual fund industry has added 2.3 Cr investor folios from April till Aug 2024 out of which more than 50% of them come from smaller cities. Such trends can foster a culture of saving and investing, and ultimately contributing to long term industry growth.

However, smaller cities still account for only 19% of the overall Assets Under Management (AUM) of the mutual fund industry. 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 centers. These smaller cities are classified as B-30 cities (Beyond the top 30 cities) by Association of Mutual Funds of India (AMFI).

What are the factors that have contributed to this trend in smaller cities?

1. Contribution from live SIP accounts:

As of Aug 2024, about 54% of all the SIP accounts in the mutual fund industry is contributed by SIPs from smaller cities. Smaller cities have a larger number of SIP accounts reflecting greater penetration in less urbanized areas.

From Apr to Aug 2024, the growth rate in the SIP accounts in smaller cities for Index Funds (18.7%) is higher than the growth rate of any other category in the industry. Altogether, about 79% of the SIP accounts from smaller cities are contributed by growth/equity oriented schemes.

The below table represents the growth rate in SIP accounts across different categories of schemes (as per MCR) for this financial year from Apr 2024 to Aug 2024.

2. Access to Direct Plans:

The rise of smartphone apps, direct investment platforms, digital payment systems, and industry initiatives has led to more than 50% of all the new investor folios in smaller cities to invest through direct plans.

Vishal Jain, CEO of Zerodha Fund House said, ”I strongly believe that simple, transparent & affordable products will help individual investors design better financial futures. Index-based products exhibit all these qualities and I’m heartened to see their growing trend in smaller cities and towns.”

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

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