Equity bug bites small-town investors

India’s stock market boom is fanning out to the country's hinterland.

Flows into mutual funds (MFs) from towns outside India's 15 biggest cities surged 41 per cent to a record ~3.1 lakh crore ($48 billion) at the end of March, according to the latest data from the Association of Mutual Funds in India (Amfi). And half of this money flowed into equity funds.

Amit Goyal, a 36-year-old human resources executive from the northern city of Dehradun, embodies this trend. He began putting ~4,000 every month into funds last year.

Encouraged by the rising value of the investments, he has since made lump sum additions.

“Investing in equities provides me with higher returns and helps create a buffer for future expenses,” Goyal said by phone. “Earlier, my investments were restricted to fixed deposits and a bit of real estate, with the rest of the money idling in a bank account.”

With the nation’s shares trading near all-time highs, the MF industry is reaching into small towns through television, social media and billboards, pitching alternatives to bank deposits and gold. The flows have added to money managers’ heft, providing a buffer against outflows sparked by global shocks.

“We used to get 85 per cent of the money from the top 15 cities and the rest from smaller places. Now, collections from small towns have doubled,” said Sunil Subramaniam, chief executive officer at Sundaram Asset Management Co, which oversees $4.6 billion. “Returns from other avenues have dried up, prompting small-town savers to take to MFs.”

Industry-wide accounts reached a record 55 million as of March 31, with 80 per cent of them in stock plans, data from Amfi show.