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>Archive: First mutual fund guide
>Best Mutual Funds
>Four golden rules for today’s investor
>Where do I invest?
>Funds to weather the bear markets
>Art and science of asset allocation
>Build a fund portfolio
>The year of commodities
>Small towns, big investments
>Wrappers: Better than Ulips?
>FMPs for lower tax
>All you Want to Know about all funds
>Opportunity in times of crisis
>The right time to sell a fund

In Ujjain, Madhya Pradesh, 44-year-old Sandeep Yagyik has put away Rs 3.5 lakh in mutual funds. Further south, K. Srinivasan, a cashier in a jewellery shop in Tiruchirapalli, invests around Rs 4,000 a month in systematic investment plans (SIPs). It’s a similar story across the country, whether it’s Allahabad, Bhubaneswar, Kozhikode or Faizabad. Investors in small towns have been bitten by the mutual-fund bug and seem to be loving it. Ashok Panda, a 39-year-old employee in a private firm in Bhubaneswar, speaks for most investors when he says, “I wanted to make investments in the stock market. However, the fear of scams made me wary. Equity mutual funds are different and I find them a good way to benefit from stock market gains.”

Till recently, investors in small towns were constrained by limited information and little access to mutual funds. They were forced to rely on traditional (and lowreturn) investments such as the post office small savings schemes, National Savings Certificates and insurance. Mutual fund houses also did not bother too much about these markets. The neglect of small towns is evident from the results of the Invest India Incomes and Savings survey carried out by IIMS Dataworks in 2007. According to this survey, over 90% of working Indians with incomes were unaware of the existence of mutual funds. Of the people who knew, over 30% could not recall a single mutual fund brand. The top five metros still account for 80% of the total investment in mutual funds.

But with high inflation eating into returns (even converting some into negative returns), and a few fixed-income returns being taxed, investors in non-metros are keen to explore new avenues. The mutual fund houses appear to have finally seen the writing on the wall. So far, they were content with investments from the metros and bigger cities and spent heavily in promoting their schemes in these areas alone. Now, with investors hungry for more, and with competition building up in the mutual fund space, fund houses are turning to small towns. The opportunity in these new markets is huge—out of an estimated 321 million people who make up the paid workforce aged 18-59 years, only 5.27 million people invest in mutual funds. Most of the potential new customers are expected to come from smaller towns.

Share of Mutual Fund Investments
Top 5 cities: 80%	Next 10 cities: 10%	Rest of India: 10%
Ashok Panda, Bhubaneswar, Orissa Invests regularly in mutual funds to benefit from stock market gains. He started with a lump-sum investment, but now puts Rs 5,000 every month in three systematic investment plans	K Srinivasan, Tiruchirapalli, Tamil Nadu Started to diversify into mutual funds in 2006 as there was very little capital appreciation through bank deposits. Also invests regularly through SIPs, especially in tax-saving funds	Sandeep Yagyik, Ujjain, Madhya Pradesh Invests in balanced funds, equity funds and tax-saving schemes. Last year, he earned 200% returns from equity-linked schemes. He is a long-term investor and his investment horizon is 10 years

This is one of the main reasons why fund houses are now training their guns on what they term the “rest of urban India”, instead of focusing on a few key urban towns. The customer base of an average mutual fund is definitely wide; around 17% of the existing mutual fund investors are self-employed. While most of them are in the middle- and upper-income ranges, others have annual incomes of less than Rs 1 lakh. Chances are that at least some of these low-income investors come from small towns.

Fund houses are promoting SIPs in small towns as the investors there are more used to instruments like recurring deposits. They are also advertising the fact that investments in mutual funds should not be seen merely as a tax-saving option, but as an investment avenue that will yield greater returns than traditional products. Banks and post offices—which have much better reach in smaller areas—are turning out to be a good way to reach out to customers. However, in most cases both these cater only to walk-in customers and do not play an advisory role, which is crucial for selling such products in these markets. So, companies are now also looking at better trained professionals to sell their schemes.

For now, however, investors in small towns have to overcome several hurdles if they want to invest in mutual funds. Rajendra Bharat, a mutual fund broker in Faizabad, Uttar Pradesh, complains that he is unable to provide same-day service to his clients. In fact, he says, a group of investors came to him on 31 March this year, wanting to invest Rs 4.5 lakh in tax-saving mutual fund schemes. However, because Faizabad does not have a mutual fund punching centre, he was unable to do this. Besides, investors are often forced to pay an entry load to invest in funds because there is no AMC office in their town. The absence of an AMC office in most small towns also adversely affects redemptions; investors take a hit if the NAV of the fund falls between the time they send their application and the time it reaches the AMC’s office.

Despite this, small-town investors have managed to make a mark on the mutual fund landscape. And now that the fund houses too have woken up to this potentially vast market, it seems likely that many of the existing problems that plague smalltown investors will soon disappear. Promoting online investment in mutual fund schemes could be the way ahead, as fund houses then might have to spend far less on physical infrastructure, and investors in small towns will be able to enjoy all the services that an investor in a metro takes for granted.