How Smaller Cities are Leading the Mutual Fund SIP Boom

The mutual fund industry in India is witnessing a significant shift, with more than 50% of new investors now coming from smaller cities, known as B-30 cities (beyond the top 30 cities).

This marks a substantial rise in investment activity from these areas, according to the latest data from the Association of Mutual Funds in India (AMFI).

From April to August 2024, the mutual fund industry added 2.3 crore new investors (folios), and over half of these new participants hail from smaller towns and cities.

This growing interest in mutual funds from B-30 cities is a promising sign for the industry, as it fosters a culture of saving and investing, which can lead to greater financial discipline and long-term wealth creation.

However, while the number of new investors is on the rise, smaller cities still account for only 19% of the total Assets Under Management (AUM) of the mutual fund industry as of August 2024. This suggests that while participation is increasing, the average investment size remains relatively low compared to larger urban centers.

Key Factors Behind the Surge

Contribution from SIP Accounts: Systematic Investment Plans (SIPs) have played a crucial role in this growth. As of August 2024, 54% of all SIP accounts in the mutual fund industry are from smaller cities. These areas are seeing greater penetration of SIPs, reflecting the increasing financial awareness among investors. Notably, the growth rate in SIP accounts for index funds in smaller cities stands at 18.7%, higher than any other category in the industry.

Access to Direct Plans: The rise of smartphone apps, direct investment platforms, and digital payment systems has made it easier for people in smaller towns to invest in mutual funds. More than 50% of new investors in these areas are opting for direct plans, bypassing traditional intermediaries.

The growth in mutual fund investments from smaller towns is a promising indicator of financial inclusion and greater investment awareness, signaling a potential shift in India’s investment landscape.

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