Statsguru: 6 December 2010

The Scorching pace of growth in assets under management for domestic mutual funds till 2007 halted abruptly after the Securities and Exchange Board of India (Sebi) banned initial issue expenses in 2006 and entry loads in 2009. Mutual fund assets increased three-fold between 2005 and 2007 and only 19 per cent in the next three-and-a-half years. Sebi secured investors’ interest while hitting at a lucrative source of revenue for distributors, thereby putting the mutual fund industry on a par with global practices.

Worldwide, mutual funds have a long and successful history, but they are more popular in developed financial markets like the United States. As at the end of October, the US alone had 14,355 mutual funds schemes with total assets of about $12,350 trillion. In India, the mutual fund industry, which started when the erstwhile Unit Trust of India was set up in 1963, is at the bottom of the pyramid among the biggies on the world map with assets of $144 billion or '6.57 lakh crore.

The domestic mutual fund industry has been dominated by the private sector with a 69 per cent share in assets despite an entry almost 30 years later. Public sector banks and financial institutions together share over 20 per cent and foreign players account for the remaining 11 per cent of assets. As at the end of October 2010, there were 41 mutual funds. The portfolio of fund houses consists of 65 per cent debt and 35 per cent equity.

The corporate sector accounts for 48 per cent of the assets of the industry with a 68 per cent share in debt funds. The banks and institutions are not comfortable using this platform with a minuscule 5.6 per cent share in assets. The retail share is 26.55 per cent, but 95 per cent of retail assets are in equity-related schemes. High net worth individuals give equal weightage to equity and debt funds. Since the corporate sector prefers to park extra cash in liquid debt schemes, over 72 per cent of debt schemes are for a maturity period of up to six months. But over 57 per cent of equity schemes are for over a duration of over two years.

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