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Why Smaller Cities Are Emerging as the Real Heroes of India’s Mutual Fund Industry
India’s mutual fund landscape is undergoing a quiet revolution, and it’s not happening in the metros. Smaller cities known as B30 locations are emerging as the new growth engines of the industry, driving record inflows with an aggressive tilt toward equities. With their share of assets touching 18 per cent and growing at a faster clip than top cities, these investors are challenging old assumptions about where financial sophistication truly resides.
India’s smaller cities are becoming a major force in the mutual fund industry, with B30 locations (beyond the top 30 cities) now contributing 18 per cent of the entire sector’s assets as of July 2025. This marks a significant shift in how investment patterns are evolving across the country.
The numbers tell an impressive story. Assets from B30 locations jumped from Rs 13.80 trillion in June to Rs 14.20 trillion in July 2025, marking a solid 3 per cent monthly growth. Even more striking is the annual growth rate of 21 per cent, which outpaced the 19 per cent yearly growth seen in T30 locations (top 30 cities) during the same period.
What makes B30 investors particularly interesting is their clear preference for equity investments. Nearly 77 per cent of their mutual fund assets are parked in equity schemes, with another 9 per cent in balanced funds. This aggressive approach to wealth building stands in sharp contrast to investors in larger cities, where debt-oriented schemes account for over 31 per cent of assets compared to just 12 per cent in smaller towns.
This equity-heavy approach suggests that investors in smaller cities are more willing to take on market risks for potentially higher returns. It’s a trend that challenges the traditional assumption that metropolitan investors are more sophisticated or risk-tolerant.
The individual versus institutional investor split also reveals interesting patterns. About 27 per cent of assets held by individual investors come from B30 locations, up slightly from 26.76 per cent in July 2024. Meanwhile, institutional money remains heavily concentrated in major cities, with 95 per cent of institutional assets coming from T30 locations and only 4.79 per cent from smaller cities.
When it comes to how people invest, direct investments are gaining popularity across all segments. Roughly 27 per cent of retail investors in B30 locations are choosing the direct route, bypassing traditional distributors. This percentage jumps to nearly 29 per cent among High Net Worth Individuals, indicating that wealthy investors are increasingly comfortable making their own investment decisions.
The overall mutual fund industry shows that 48 per cent of assets are now invested directly, while 46 per cent still come through non-associate distributors. This near-equal split suggests the industry is in transition, with more investors becoming comfortable with self-directed investing while traditional distribution channels remain relevant.
For the mutual fund industry, these trends present both opportunities and challenges. The strong growth in B30 locations opens up new markets and investor bases, but it also requires different approaches to customer service and product distribution. The preference for equity investments in these markets could drive overall industry growth, especially if these investors maintain their risk appetite during market volatility.
The data also suggests that financial literacy and investment awareness are spreading beyond major metropolitan areas. Investors in smaller cities are not just participating in mutual funds but are making sophisticated asset allocation decisions, favoring growth-oriented equity investments over conservative debt options.
As India’s economy continues to expand and digital platforms make investing more accessible, the contribution from B30 locations is likely to grow further, potentially reshaping how the mutual fund industry approaches product development and market expansion strategies.
Source: ICRA Analytics report dated August 22, 2025