Mumbai: After keeping pace with the capital market in terms of growth and still maintaining a better risk profile for investors, mutual funds (MFs) are emerging as a viable long-term savings vehicle, a study shows.
The MF industry has grown four-times to a whopping $65 billion (Rs2.86 lakh crore) in terms of their total asset size since 1993, while the industry’s contribution to the country’s gross domestic product has also grown in the past decade to nearly 10%, a Deutsche Bank Research report said.
The Sensex has also nearly quadrupled since 1993 and due to the loosened restrictions on investment in-debt instruments and money markets, MFs have been able to match the strong growth.
“Combined with rising percapita 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 has said.
Besides, the new offers of open-ended schemes allow 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.
MFs 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 a monthly basis, AUMs of the 30 fund houses increased 2.2% to Rs1,46,749 crore in January 2007 from Rs1,43,619 crore in December 2006. The rise in the equity AUM was in line with the market movement of 2.2%.
Despite their rapid growth for the past three years, the DB Research report says that MF industry still cannot be characterized 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 2006 Union budget 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, the report said.