Is There any Turn-Around for Indian Mutual Fund (MF) Industry?

The mutual fund industry today is one that creates opportunities as well as challenges. The industry is learning to move as per the instructions of regulatory authorities given from time to time. Likewise, businesses are also gearing themselves to face the new situations.

While the ongoing changes are continuum to the ones earlier, all the units in the industry including asset management companies (AMC), should throw a glance at the market situations and realign themselves to the new competitive conditions.

Over the last two years, because of changes in the Indian and global economies, retail investors are adopting more cautious approach, therefore, there is net redemption. This reflects lack of confidence in the market. However, by economizing cost, innovation in product design and positioning, using a different distribution model, creating new capacity in the industry would save the industry from the current downturn.

Recently, PwC presented a report on Indian mutual funds in India. The principal findings were as follows:

  • Measures should be taken to take care of cost efficiency, product design and positioning, alternative distribution model, revenue diversification and capacity creation.
  • MFs in India faced net redemption due to unfavourable situation- domestic as well as global. In terms of assets under management handled, it was a drop of 1.8%.
  • The movement of the SENSEX and the assents under management (AuM) for MFs has been one behind the other. Market conditions in 2006 resulted in greater inflow of money into the market.
  • Volatile market in the last two years has led to net withdrawals amounting to Rs.49,406 crore in 2010-11 and Rs 22,023 crore in 2011-12.
  • A large chunk of Indian MF industry is debt-oriented with debt funds (including liquid funds). These approximate at 64% of the AuM. Under the circumstance, increased equity participation would boost the industry.
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