Business Standard

Small cities pave way for best NFO mop-up

Jump in average ticket size helped ~14,551-crore collection by SBI MF

- CHIRAG MADIA Mumbai, 15 September

The ongoing bull run in domestic equities has helped mutual fund (MF) houses mobilise record amounts through new fund offering (NFOS).

In July, ICICI Prudential Flexicap had collected ~9,808 crore — the highest-ever by an actively managed equity scheme. A month later, the record was broken by SBI Balanced Advantage Fund, which collected ~14,551 crore.

How did the country’s largest fund house manage to better the record for the highest-ever NFO collection by an actively-managed scheme by almost 50 per cent? Contributi­on from smaller towns, increased in average ticket size, and a push by distributo­rs could have played a part.

The SBI Balanced Advantage Fund NFO saw 400,000 investor applicatio­ns. Typically, mid-size fund houses get around 15,00020,000 applicatio­ns, while bigger fund houses get around 50,000 applicatio­ns during NFOS, said industry players.

D P Singh, chief business officer at SBI MF, said the best-ever collection in the NFOS was supported by strong response from semiurban and rural areas.

The vast branch network of the parent, State Bank of India (SBI), provided SBI MF the necessary muscle to reach out to a wider audience. The fund house also received encouragin­g participat­ion from other channel partners, such as distributo­rs and online portals.

According to experts, the communicat­ion made by the fund house struck a chord with investors. The scheme presentati­on, fund manager interviews, and other communicat­ion material of the scheme were distribute­d among investors in more than nine languages in order to appeal to pan-india investors.

Typically, fund houses tend to focus on only the top eight cities as they contribute between 60 per cent and 70 per cent to NFO collection­s. In SBI Balanced Advantage Fund, only 35 per cent came from the top cites and remaining from beyond eight cities.

On the whole, the MF industry has deep penetratio­n in urban centres like Mumbai, Delhi, Bengaluru, Pune, Kolkata, and Ahmedabad. The share of beyond 30 cities (B30) is still low. Of the total AUM of ~35.3 trillion as of July end, only ~6.1 trillion belonged to B-30 cities.

The share of B-30 cities in total industry AUM has hovered around just 15-17 per cent over the past four years. The industry has taken efforts to improve the mix.

The average ticket size for SBI Balanced Advantage Fund NFO was around ~300,000, as ~50,000 for most other NFOS. This was because over 90 per cent of investment­s came from lump-sum investors. Applicatio­ns from low-ticket systematic investment plans (SIPS) were less than 8 per cent.

Industry players the success of the scheme will be critical for the industry.

“Over the past few months, the SBI MF NFO, as well as some other NFOS have managed to mobilise large sums. Many participan­ts are first-time investors. How these schemes do over the near term, as well as the medium-to-long term will determine their future behaviour. It is important that these schemes do well not just from the fund house’s point of view but the entire industry,” said a senior official of a fund house.

SBI Balanced Advantage Fund is an open-ended dynamic asset allocation fund. The scheme’s objective is to generate long-term capital appreciati­on by aiming to capture the potential upside and limit the downside in volatile equity markets.

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