Mutual Funds ooze confidence about prospects
Apr 15, 2002

Author: PersonalFN Content & Research Team

A lot of investors seem disillusioned with mutual funds post-budget. The move to tax dividends is seen as a big blow and investors are asking if mutual funds are still as attractive as they were with the tax sops. While investors may have their reservations, fund managers continue to believe that mutual funds are the way to go.

To begin with, mutual funds were never really over-dependent on the finance minister's tax sops to prove their case with investors. The tax benefits were just a catalyst but not the raison detre for the product. The real benefits of the product lie in liquidity and superior returns vis-à-vis comparable investment avenues. Topping everything is the fact that mutual funds are the most diverse investment avenue offering a host of options catering the 30-year old risk-taker as well as the 60-year old risk-averse investor.

After the Union Budget 2002-03 we had the opportunity to speak to four personalities from the mutual fund industry about the future of the product in the country after the punishing move to tax dividends in the hands of investors.

Mr Krishnamurthy Vijayan, chief executive officer (CEO) JM Mutual Fund believes, The move to tax dividends could be a blessing in disguise, since the industry was beset with the problems of large short term investors who were coming in close to dividend date and withdrawing within 3 months. As such we hope to attract more long-term investments.

Mr R Sukumar, VP Investments, Pioneer ITI, seemed supremely confident about the industry's prospects, We are confident of the inherent strengths of the industry like good performance combined with liquidity and convenience will continue to ensure steady investor interest in mutual funds. The tax breaks were just one of the reasons, which made mutual funds an attractive investment option.

Like Mr Krishnamurthy Vijayan, Mr N K Sharma, chief operating officer (COO), IL&FS MF, believes that long term investing will get the necessary fillip, The impact of the budgetary changes will give a boost to investing for a medium to long term investing as compared to the short term perspective and churning which had become the order of the day in the recent past. The basics of mutual fund investments remain unaltered like risk management by professionals, diversification, liquidity, and convenience and of course the benefits of capital gains.

Mr Sarvana Kumar, Head of Fixed Income SBI Mutual Fund also believes that mutual funds are still attractive, We are anticipating the private savings rate (23.4 %) will improve further. So going forward, investors will be looking at mutual funds for savings as well as superior returns. Risk-averse investors may prefer debt funds compared to equity funds.

Apart from the inherent strengths of the product, the industry is also banking on the dearth of comparable investment options for the investor. Mr Sukumar opines, As small savings rates are cut and linked to market benchmarks and cap on investment in securities like RBI Relief bonds will narrow the options available for the Indian investor and should result in additional flows into the industry.

Fund houses have introduced some innovative measures to ensure investors stay with the fund house. They are doing their best to convince investors that mutual funds remain as tax-efficient and rewarding as before.

However, all this is easier done than communicated. It will not be an easy task for fund houses to convince investors to opt for mutual funds under the current taxing scenario. Mr. K Viyayan concurs, We will have to continue to strive to convince people that the greater transparency and compliance that we provide is a far better long term assurance of safety than the veil drawn by assured return avenues across what they do with the money invested with them.

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