'Mutuals Will Be Ultimate Choice For Small Investor'

Business Standard: What, according to you, is the future of the mutual fund industry in India?

D Gadgil: Currently investors have a negative perception about the equity markets in general. A large number of investors, who had put in their hard earned money in IPOs have burnt their fingers. Even in mutual funds, people have lost money.

Since most of these schemes were primarily equity-oriented, there was a sharp fall in their net asset values (NAVs) along with the declining indices. Our capital market is going through a transitionary stage and as in overseas markets, mutual funds will be the ultimate investment vehicle for small investors. The outlook for the future is optimistic.

BS: There were media reports that Sebi has turned down your proposal to launch an interval fund.

DG: The reports are incorrect. The market regulator had, in fact, cleared our proposal to launch the country's first-ever interval fund. The fund, according to our proposal, would have been structured as a close-ended scheme having a span of 14 years. It would have opened for redemption as well as issual of new units once every six months during the tenure of the scheme.

Ironically, only a few days after we got the clearance from Sebi, the Mutual Fund 2000 report was announced and we came to know about the new interval fund norms through press reports. Therefore, we have decided to wait till the new norms are put into effect.

An interval scheme, in line with the new regulations, is ready with us and would be filed with Sebi as soon as the new guidelines are notified.

Presently, even other AMCs have started thinking in our lines, but we had been the pioneers in this area for the Indian mutualfund industry.

BS: Recently two AMCs with substantial foreign holdings had tapped the market with open-ended schemes. The results, however, were far from satisfactory. Please comment.

DG: Both these schemes have been able to mop up their required corpus. They were well-structured and all I can say is that they were caught in the scenario of retail investors moving away from mutual funds. If the present conditions continue it is the smaller schemes which are going to be hit. Larger funds, in the long run, will always survive. Every mutual fund scheme, more specifically the smaller players, have to minimise their losses and concentrate on consolidation of their activities.

BS: The Mutual Funds 2000 report has specified that AMCs should raise equity capital to Rs 10 crore. What is your reaction?

DG: Shriram AMC is bracing itself for a rights issue following the Sebi directive in Mutual Funds 2000 that all AMCs should have a minimum equity capital of Rs 10 crore.

Shriram AMC, being the only AMC in India to be traded as a listed security, has a 25 per cent retail shareholding. The present paid-up equity capital of the AMC is Rs 6 crore after the AMC went public issue with a Rs 1.5 crore priced at par in November 1995.

In order to fall in line with the Sebi regulations, the company is proposing to come out with a 1:1 rights issue of Rs 4 crore, of which shareholders would be bringing in a sum of Rs 1 crore.