Market watch: The other India is investing

At over Rs 4.34 lakh crore, the share of B15 towns (as the ‘Beyond 15’ cities are popularly addressed) in the mutual fund industry assets under management (AUM) works out to 18.9% in January 2018. B15 towns are the country’s smaller towns beyond the top 15 cities. Their AUM grew by an eye popping Rs 1.37 lakh crore  (up 46.2%) in the last twelve months, from Rs 2.97 lakh crore.

However, effective April 1, 2018, these contours will change as the Securities and Exchange Board of India (SEBI) has revised the definition of top cities for the purpose of mutual funds’ total expense ratios. The T15 (Top 15) and B15 are slated to be replaced by T30 and B30 then.

Data by industry body, Association of Mutual Fund Industry (AMFI) also reveals that the share of direct plans in B15 towns stood at 20.6% compared to 45.1% in T15 cities. That means a decent proportion of investors in smaller towns are tapping the mutual funds without intermediaries.

In general, January 2018 also noted equity AUM crossed the Rs 7 lakh crore mark, while the broader industry AUM grew to Rs 22.41 lakh crore. Equity funds, which include Equity Linked Savings Scheme (ELSS), saw net inflow of Rs 15,390 crore last month, a 4% decline compared to December 2017. “The fall could be because of investors turning cautious ahead of the Union Budget 2018-19,” says a note by rating agency ICRA. Cumulative inflows into these funds have surged 166% to Rs. 148,144 crore so far in FY2017-18 (April 2017 to January 2018), compared with Rs. 55,689 crore in the same period for FY2016-17.

Quoting SEBI data, the ICRA note highlights that the total mutual fund folio count at the end of January 2018 stood at 6.83 crore, 2.7% higher compared with December 2017. “The increase comes amid strong rally in the domestic equity market,” says ICRA. The mutual fund industry added close to 18.45 lakh new folios in January 2018 out of which 15.96 lakh were in the equity category (including ELSS).

The union budget 2018-19 has proposed dividend distribution tax levy at 10% on distributed income by equity-oriented mutual funds, and also 10% (without any indexation benefit) long-term capital gains (LTCG) on equities & equity-oriented funds exceeding Rs. 1 lakh.

Chandresh Nigam, MD & CEO of Axis Mutual Fund is of the belief that the new LTCG tax has been introduced with grand-fathering of gains till 31 Jan 2018, which minimizes any potential short term disruptions. “While the tax is a negative for the markets, the fact that equity instruments still attract the lowest rate of tax, mean that the asset class will continue to see good flows,” Nigam had said after the budget. “There however may be some knee jerk reaction in the short term,” he had warned.

The impact of the proposed taxes will be seen in the industry data for February 2018. However, RBI data on changes in assets / liabilities of the household sectors for 2016-17 reveals that investments in shares, debentures and mutual funds grew 342% to Rs 1,82,578 crore, from Rs 41,317 crore in 2015-16. Clearly, the appetite for mutual funds’ investments has been rising. And the smaller town investors are catching up. And, fast.