'Capital markets not ready yet for financial inclusion'

Even though financial inclusion is the new buzz word in the financial services sector, Sebi chairman C B Bhave feels that the country is not ready yet for the same in the equities markets.

"We must first understand the term financial inclusion, as defined by the Reserve Bank. It is different for banks and mutual funds. When we talk of banks, it means to include the poorest of the poor...But that can't be same for MFs," Bhave told a mutual fund summit here yesterday.

Taking a dig at MFs, Bhave said MF players should not get involved in a rat race to sell or mis-sell their products and should first understand who their target customer is.

"Financial inclusion is a noble goal and everyone should be working towards achieving it, but one must keep in mind the target customer. A person whose lifetime saving is a mere Rs 50,000 can't afford to invest in MFs. If the market crashes tomorrow, he cannot take that kind of risk. You will only give him what the NAV is at that particular time," Bhave said.

Meanwhile, global advisory firm PWC, in a report has stressed that there is tremendous growth opportunity for mutual funds as the penetration level in smaller towns is lagging behind urban centres.

Quoting the National Council of Applied Economic Research 2008 Survey, PWC said as much as 65 per cent of the savings are with banks or post offices, 23 per cent are invested in real estate and gold, only 12 per cent are channelised towards financial instruments.

"Only 12 per cent of the savings are invested in financial instruments. This manifests tremendous opportunity for growth in mutual funds," it added.

It also attributed the growth opportunity to rising disposable incomes in tier II and III cities. It also stressed that the industry should come out with better plans and innovative products that would offer a higher rate of return, transparency and freedom to select the products of their choice.