Mutual fund asset base can grow to Rs 20 lakh crore: Sebi

Market regulator Sebi expects its new long-term policy for mutual funds to help their total asset base grow to Rs 20 lakh crore within five years, from about Rs 9 lakh crore currently.

The board of the Securities and Exchange Board of India (Sebi) cleared a proposal last week for the first ever long-term policy for the mutual fund industry, proposing a number of tax benefits and measures for growth of this business.

According to the draft policy, which will be notified after changes suggested by the Sebi board, there is huge scope for expanding the reach of mutual funds and channelising household savings into them.

"With a long-term policy in hand, huge growth may be targeted in assets under management (AUM) from present Rs 8 lakh crore to Rs 20 lakh crore in a period of five years," Sebi has said.

This growth would be accompanied by an increase in folio numbers, substantial contribution from smaller cities and a higher number of distributors, among others, the regulator said.

The collective AUM of 45 fund houses stood at about Rs 8 lakh crore at the end of 2013 and has grown to over Rs 9 lakh crore.

In the policy, the regulator has proposed several tax incentives for investors and a final decision in this regard would be taken after the government's approval.

The policy calls for measures to weed out non-serious players and safeguard investors' interest while promoting mutual funds as a key long-term investment option.

"...Like other sectors of the economy where long-term policies have been developed, there is a need to develop a policy for mutual funds taking into account its importance in mobilising domestic savings for the growth of the economy and achieving inclusive growth," Sebi said.

It said the growing Indian middle class can be tapped to augment the mutual fund retail investor base.

Growth in the mutual fund industry has remained sluggish in the past couple of years although the regulator has taken several measures to re-energise the sector.

According to an estimate, over 44% of households in the US have their savings in mutual funds, while in India the figure is a mere 2.5%.