Mumbai: After keeping pace with the Indian capital market step by step in terms of growth and still maintaining a better risk profile for investors, the mutual funds are emerging as a viable long-term savings vehicle in the country, a new study shows.
The mutual fund industry has grown about four-times to a whopping $65 billion (Rs2,86,227crore) in terms of their total asset size since 1993, while the industry’s contribution to the country’s GDP has also grown considerably in the past decade to nearly 10 per cent, a Deutsche Bank Research report said.
Interestingly, the stock market’s benchmark index (Sensex) has also nearly quadrupled since 1993 and due to the loosened restrictions on investment in-debt instruments and money markets, the mutual funds have been able to match the strong growth.
“Combined with rising per-capita income, improving awareness of capital market investing and pension fund reforms would make mutual fund investing a viable long-term investment vehicle,” DB Research analyst Jennifer Asuncion-Mund said.
“A number of different schemes are now available in the market which appeals to investors varying investment objectives and constraints,” she added.
The different new schemes include -- assured return, balanced, floating rate, fund of funds, gilt, growth, income, liquid and money market funds.
Besides, the new offers of open-ended schemes allowed investors the flexibility to adjust their fund exposures, while regulations against fund managers’ use of derivatives have been relaxed, allowing them to hedge their positions.
Equity Asset under managements (AUMs) of fund houses are rising steadfastly with robust capital market growth which vouches for the positive outlook for the industry.
Mutual Funds have added over 18.5 lakh investors in the third quarter of current fiscal taking the total investor base to 2.67 crore, according to leading brokerage firm Sharekhan’s report on the MF industry.
On monthly basis, AUMs of the 30 fund houses increased 2.2 per cent to Rs 1,46,749 crore in January 2007 from Rs 1,43,619 crore in December last year. The rise in the equity AUM was in line with the market movement of 2.2 per cent.
Interestingly, the cash level for all equity funds launched before January 2007 increased to Rs 9,957 crore in the month from Rs 6,710 crore in December 2006. The cash as a percentage of the total corpus also followed a similar trend, increasing to 8.2 per cent in January, 2007.
“The increase in the cash levels has been largely due to profit booking in a rallying market.. flush with cash MFs are well-placed to maintain the buying interest and propel the market forward,” the Sharekhan report said.
Despite the rapid growth in the industry for the past three years, the DB Research report says that MF industry still cannot be characterised as “come of age,” if seen in the light of their low share in the household sectors total investment pie.
One promising development announced in the Budget in 2006 was the lifting of overseas investment limits by mutual funds to $3 billion from $2 billion.
This would allow domestic fund managers to offer new opportunities in higher-yielding funds, such as those dedicated to emerging markets and alternative investments (eg commodities), currently not available in the local market, the report said.