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Domestic Mutual Funds Size Likely To Be Rs. 6 Lakh Cr. In March 08

The domestic mutual fund industry (IMFI) which grew at a healthy pace of 18-19% in the last eight years against its worldwide growth rate of 13%, is all set to beat past time records and now poised for achieving 22-23% rate of growth by end of current fiscal.

According to a Study on `Indian Mutual Fund Industry? undertaken by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), it is highlighted that IMFI which owned assets worth around Rs.5 lac crores until about September 2007, may end up notching assets size of about Rs.6 lac crores by March 2008, as it has started expanding its penetration at smaller towns with vigorous speed.

According to the ASSOCHAM Study, Asset Under Management (AUM) as percentage of GDP in India is 4.12% as against Australia 88.22%, Germany 10.54%, Japan 7.57%, UK 18.81%, USA 61.27%, Canada 34.33%, France 59.63%, Hong Kong 101.085 and Brazil 19.95%.

It was observed that IMFI is in fast growth phase, competition is becoming fierce with mergers and takeovers and building of brand exercise through focussed advertising, better customer service, newer distribution channels, consistent return and newer products offerings.

The mutual fund industry which witnessed downfall in 1991 when its declined to Rs.4100 crore achieved significant growth in 1998 and the total industry became worth Rs.72,000 crores and ever since this has kept increasing, revealing its efficient growth. In fact, the months of February and March considered toughest due to large-scale redemptions to meet tax liabilities also were active.

In March 2006, mutual funds were net buyers worth Rs.4,041.88 crores, gross purchases being Rs.14889.15 crore and gross sales Rs.10847.27 crore making March the most active month for the mutual fund industry in India. May of year 2005 was considered the most active month when mutual funds were net buyers of worth Rs.3,334.99 crore.

It is also highlighted that in view of growing awakening and certainties prevailing in MF industry, its market penetration would more than double by 2010 from about 4% now as gradually mutual funds are becoming preferred savings instrument for urban and rural folks.

Despite domestic MF growing at substantially higher rate in last 3 years, it is still many times behind US MF industry, the size of which is estimated at over US$ 12 trillion as against about Rs.5 lakh crore of India with its market penetration of 4% of total population, compared to 49% in the US and 20% in UK. In India, MF industry manages nearly 700 schemes while US MF industry has more than 12,000 MF schemes.

The public sector share in current MF industry size will go up from nearly 20% from less than 10% now and that of joint sector to about 10% from 8% now.

The emerging trends in the MF would be that the Commodity funds will invest in commodities such as metals, food grains, and crude oil, commodity companies, or commodity futures contracts.

Likewise, Real estate funds will invest in real estate directly. As the competition in the Indian MF industry will further intensify and go forward. Fund managers will, therefore, need to deliver products that are relevant to investors. As the Indian markets and investors mature, financial advice, product diversification, and multi-distribution channels will become critical for long-term success.

Increasing investor awareness will help propel growth for the Indian MF industry. Investors need to be however warned against the common fallacy of comparing returns of debt-oriented fixed-income MFs and fixed-income products of small savings schemes without considering the attendant risks.

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