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Changing Trend of Investing Among Users from Towns and Small Cities Right from high propensity to save to investing primarily in equity mutual funds, investment behaviour in small towns and cities are quite different from that of top cities

By Samant Sikka

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Undoubtedly, we have made a huge progress in creating saving and investment behaviour in the last few decades. In facts, in just past 8 years, the asset under management in mutual funds have quadrupled. However, the fact that 88% of the AUM belongs to top 30 cities makes us wonder the untapped investment potential in small towns and cities.

Historically, inadequate information and inadequate access to financial resources have been the defining reasons for people in small towns to not indulge in banking and investments.

However, in the past few years, there has been a sharp upward trend in terms of increase in investment options for people all over the country. Not only have we seen more rural bank accounts being opened owing to the "Jan-Dhan Yojana', but also an increase in investments from urban India in share markets, mutual funds, IPOs and several others.

The most interesting aspect that has come through during this tenure, is the changing trend of investments amongst the populous from small towns, especially cities that are beyond the Top 30 Cities of the country.

Increased penetration of banking services through JAM Yojana
JAM (short for Jan Dhan-Aadhaar-Mobile) trinity refers to the government of India initiative to link Jan Dhan accounts, Mobile numbers and Aadhar cards of Indians to plug the leakages of government subsidies.

JAM - With a vision to connect 1Bn unique aadhaar cards to 1Bn bank accounts to 1Bn mobile phones, JAM has been a huge success. Between 2015 and 2017, the number of Jan Dhan Accounts has more than doubled from 13 Cr to 30 Cr. These accounts holders have also been at the receiving end of special privileges from the banks, such as zero transaction charges & zero minimum balance, which has helped in the Project's success.

Increase in Mutual Fund penetration but limited diversification
In the last one year, the total AUM from B30 cities has increased INR 1,64,963 Crores to INR 2,51,797 at a CAGR of 53%.

As per SEBI data, 65% of the total mutual fund asset from B30 cities are in equity schemes. In contrast, for the top 30 cities, only 36%-38% of mutual funds investment goes in equity schemes. While a large presence institutional investors in top cities might be the reason behind higher concentration in debt in top 30 cities, the investors in small towns certainly lack diversification.

Propensity to save

According to a SEBI (Securities and Exchange Board of India) survey, there is a high propensity to save in small towns and rural areas in India.

It is seen that 31% of the above one lakh income households and 28 per cent of the 50,000 - 1,00,000 income households have total savings that are more than 40 per cent of their annual household income. That's because expenses are lower in small towns, leading to higher chances of capital formation. This data again highlights the huge potential for growth in financial product penetration in this segment.

Penetration of technology
Where Financial intermediaries have not been able to reach in the last couple of decades, technology penetration especially owing to the cheaper internet and mobile devices have enabled the people in smaller town to get a taste of the new age financial services.

Mobile banking and investment applications have allowed even the most remote areas to dive gracefully into the shares & mutual fund spheres, and manage their money on the go.

The financial aspirations of people from the small Indian towns are bigger than anyone would expect. While there has been an exceptional rise in savings and investments behaviour, there is a still a lot of ground to cover when it comes to creating awareness and making resources available.

Samant Sikka

Founder - Sqrrl

Sikka is a proficient investor with two decades of experience in the Investment and Asset Management industry. After gaining decades of experience across Sales, Business Development, Strategy, Marketing and technology, it was a natural progression for an enterprising Samant to take on a challenge in the same industry. 

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