For starters, it said there was high dependence on corporate and institutional investors, which made them susceptible to short-notice withdrawals. “A high dependence on corporates for funds implies a lesser role for the retail investors,” it said in its Annual Report 2008-09.
Further, it said the share of equity schemes had risen in recent years, but it still accounted for less than 25 per cent of the industry’s assets. Most of the funds mobilised by mutual funds were through liquid schemes that were used by companies and banks with a short-term perspective, it said. According to the Association of Mutual Funds in India (AMFI), at the end of July, equity assets accounted for only 22 per cent of the industry’s assets of Rs 7,21,886 crore.
The chief executive of one of the largest fund houses in the country said RBI’s concerns were a little late in the day. In addition, he said, banks were parking large amounts in money-market schemes. This amount was estimated at Rs 139,619 crore at the end of July 2009. “While banks are not lending due to fear of defaults, they are passing the risk to mutual funds and still earning high returns. It’s time the regulator did something,” he said.
The report said there was a need for consolidation by linking the number of permitted schemes to the level of net-owned funds. RBI said there was a proliferation of schemes, which led to confusion. It said nearly 400,000 systematic investment plans (SIPs) had been shut down in recent months.
The report said mutual funds were largely dependent on a few urban centres and their penetration levels remained low in comparison with the funds in other countries.
“The government and the regulator should look at incentives to increase penetration. Insurance has penetration because it has product-pushers,” said UK Sinha, chairman and managing director, UTI Asset Management Company.
Assets under management in India as a percentage of GDP stand quite at 5 per cent as against 70 per cent in the US, 61 per cent in France and 37 per cent in Brazil. Investment in mutual funds in India comprised 7.7 per cent of the gross household financial savings in FY2008, a significant increase from 1.2 per cent in 2004, according to a KPMG report.
RBI’s comments came in the wake of the global financail turmoil, which created a scare in the domestic mutual fund market, prompting some unprecedented steps from regulators. On its part, the central bank had opened a special line of credit to ensure that there was adequate availability of funds and a systemic crisis was avoided. The Securities and Exchange Board of India, which regultes mutual funds, also cracked down on fixed-maturity plans and a put in place a set of revamped rules.
INDIAN MUTUAL FUND INDUSTRY DEPENDS HEAVILY ON CORPORATE FUNDS,WHO WITHDRAW
FUNDS AT EVERY CRITICAL JUNCTURE,ADVERSELY AFFECTING THE LONG TERM RETAIL INVESTORS. PRACTICE TO BUY CUM AND SELL EX DIVIDEND,WERE CONTROLLED BY THE REGULATOR ONLY AFTER HUGE LOSSES SUFFERED BY THE RETAIL LONG TERM INVESTORS. ONE WONDERS HOW SUCH MANIPULATIONS ARE ALLOWED.
RBI AND SEBI SHOULD INDEED SERVE THE INVESTORS FOR WHOM THE INDUSTRY IS MEANT,AND NOT THE OPPORTUNIST SHORT TERM PROFIT MAKERS.
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