Yet, beneath these impressive numbers lies a tale of two Indias: one where sophisticated urban investor drives exponential growth, and another where millions of potential investors remain locked out of the wealth creation journey.
The great divide: Where growth really comes from
While tier-I cities have long dominated mutual fund investments, the real story emerging today is the gradual awakening of beyond top 30 (B30) locations – a classification that encompasses all cities and towns outside India’s 30 largest metropolitan areas.
These locations, spanning tier-II, tier-III cities, and smaller urban centres, represent the country’s aspirational heartland where economic prosperity is rising but financial inclusion remains incomplete.
The numbers mentioned above paint a compelling picture of change. B30 locations recorded over double the gross inflows into equity schemes in FY25 compared to FY23, matching the growth trajectory of India’s financial capitals. More striking still, their share of new SIP registrations jumped from 49% in FY23 to 56% in FY25, with cities such as Cochin, Dhanbad, and Aurangabad witnessing SIP registrations growing at an impressive 45% compound annual growth rate over two years.
The invisible barriers
Yet, for every success story, countless potential investors remain sidelined by barriers that traditional industry metrics fail to capture. The most fundamental obstacle is the deeply ingrained investment psychology shaped by generations of financial conservatism. In smaller towns, where families have witnessed the stability of post office deposits and bank fixed deposits through economic upheavals, the concept of market-linked returns feels alien and threatening.
This traditional investment bias is further exacerbated by alarmingly low financial literacy. Fundamental concepts, such as risk-reward dynamics, the wealth-eroding effects of inflation, and the power of compounding, remain foreign to vast segments of the population. The result is a preference for seemingly “safe” and “low risk” investments that often fail to preserve purchasing power over time.
The language barrier creates another layer of exclusion. While India’s linguistic diversity is its cultural strength, it becomes a significant hindrance when financial education and product information remain largely confined to Hindi and English. Potential investors in Tamil Nadu, Karnataka, or West Bengal often struggle to access meaningful information about mutual funds in their native languages, creating a significant comprehension gap.
Trust deficit and physical absence
Another crucial aspect of analysis is how the mutual fund market faces the challenge of a lack of trust in smaller markets. Investment decisions in these communities are deeply personal, often requiring face-to-face conversations with trusted advisors. However, the mutual fund industry’s historically urban-centric approach meant minimal physical presence in B30 locations. Unlike insurance agents who build relationships over years of regular visits and claim settlements, mutual fund distributors remained largely invisible in these markets.
The regulatory requirement for risk disclaimers, while essential for investor protection, inadvertently amplifies fears about market investments. When every piece of marketing material emphasises risk, it reinforces the perception that mutual funds are equivalent to gambling rather than disciplined wealth creation tools.
The distribution challenge extends beyond mere presence. In recent years, changes in mutual fund commission structures have led to a decline in distributor engagement, particularly in underserved regions. This shift has made it more difficult to sustain grassroots promotion of mutual fund products.
With a limited number of active mutual fund distributors across India especially when compared to the broader network of financial intermediaries the disparity in reach becomes evident. Addressing this gap requires renewed focus on scalable, inclusive distribution strategies that empower local advisors and enhance investor access.
Further adding to the challenge are compliance requirements, which, although necessary, create additional friction. KYC processes and PAN card mandates for larger investments often exclude segments of the population who lack formal documentation or find the paperwork overwhelming. These seemingly minor administrative requirements become significant deterrents in markets where financial formality has historically been low. However, the situation isn’t completely bleak.
The turning tide
With Sebi’s introduction of small-ticket SIPs starting at just ₹250 per month, there is greater democratised access, making mutual fund investments accessible to even modest earners. Additionally, digital penetration, accelerated by smartphone adoption and improved internet connectivity, is breaking down geographical barriers.
Fintech platforms are emerging as game-changers, offering vernacular language support and simplified user interfaces that resonate with first-time investors. Regional education drives are slowly but steadily improving financial literacy, while distribution houses are expanding their physical presence in B30 markets.
These locations now contribute 18% of the industry’s total assets and command 27% of individual investor assets, underscoring their growing importance.
The way forward
Tier-II and tier-III districts are driving India’s economic transformation, creating unprecedented opportunities for inclusive wealth creation and financial empowerment across underserved territories. Enhanced vernacular content, simplified product structures, strengthened distributor networks, and continued regulatory support for small investors will be crucial.
Consumers in financially underserved territories will benefit from enhanced advisory services and improved financial literacy programs. This transformation ensures that the investor of Bharat truly participates in the growth of Bharat, experiencing better financial outcomes in the years ahead.
The momentum is building, and the focus now shifts to accelerating and sustaining this inclusive transformation across India’s emerging economic centres.
Rahul Mathur CEO of Roinet Insurance Broker. Views are personal
