As rural economy sparkles, mutual funds push to capitalize

As rural economy sparkles, mutual funds push to capitalize

With the rural economy performing well on the back of good rainfall and agricultural sector growth, mutual fund houses have started launching rural-focused funds to take advantage of the improved outlook for companies benefitting from a rise in demand from rural and semi-urban centers. ICICI Prudential Mutual Fund (January) and Kotak Mahindra Mutual Fund (November) have both launched a specialised Rural Opportunities Fund this year.

“Earlier, agriculture was the primary contributor in rural income, now non-agriculture makes up has 50 per cent contribution. Our view is rural economy will continue to do better than urban economy over the next couple of years,” said Nilesh Shah, MD at Kotak Mahindra Asset Management Company.

“Rural India has a higher population and also has higher incremental income (compared to the urban section), which will lead to higher spending,” Shah said. The new fund by Kotak Mahindra MF will focus on smaller companies that have benefitted due to improved connectivity and distribution channels over the past few years, he added.

According to data from the Statistics Ministry, growth in gross value added of the agricultural sector has averaged 5 per cent over the four quarters ended in June 2025. Over the same period, the manufacturing sector has grown at a slower average pace of 4.6 per cent. The headline GDP growth rate, meanwhile, has averaged 6.8 per cent over the four quarters in question.

As of the end of September quarter of financial year 2025-26, total assets under management (AUM) for the mutual funds industry stood at Rs 75.61 lakh crore, up from Rs 24.51 lakh crore for the same quarter of FY20. The growth in the rural economy also may be reflecting in how they have been investing, with nearly 19 per cent of the total AUM in the September quarter consisting of investors from beyond the top 110 cities. In the same quarter in 2019-20, the figure stood at 11 per cent.

According to George Thomas, equity fund manager at Quantum Mutual Fund, rural investment in mutual funds schemes has particularly picked up since the Covid-19 pandemic, with the rise being led by good returns, which have been attracting retail investors.

“Flows (inflows into funds) have a very strong correlation with trailing returns, and my sense is most of the investors have come after Covid-19 and they haven’t seen a bad return. Most of them are sitting with healthy returns, at least for SIPs and regular investments,” Thomas said.

Higher visibility of mutual fund schemes and improved accessibility to investing due to the advent of digital platforms has also helped drive rural participation. Fuether, increased awareness due to social media and the growth of online advisors has helped mutual funds penetrate further into the rural market, Thomas said.