Private funds post three-fold rise in assets
Sep 21, 1999

Author: PersonalFN Content & Research Team

Private sector mutual funds (MF) have registered explosive growth of 290% over July 1998 to August 1999. This is more significant when compared to the 40% growth that these funds posted over the period June 1998 to June 1999. This was disclosed in a leading financial daily.

There are several reasons why investors have turned to MFs in a big way. The ball was set rolling by the Finance Minister in the last budget, when tax sops were offered to the MF investor. Then the upswing in the equity markets, (driven by software, pharma and consumer products stocks), attracted investors back to MFs. The recent surge in share prices has put these stocks beyond reach of the average, retail investor. In such a situation, the investor has chosen to invest in MFs, which are the best bet after equities. (Some MFs have even outperformed the BSE Sensex). Definite signs of an economic upswing has also contributed to the euphoria among investors.

Investor-perception has improved considerably due to the innovative products and services that are being offered by MFs. There is increasing awareness at the retail level of the advantages of investing in MFs and the increasing inflows bear testimony to this fact. In addition to retail investors, even corporates are investing in MFs.

But not all segments of the MF sector have reaped the benefits of the explosive growth in inflows. Private funds have outperformed their public sector counterparts in this regard, which again has a lot to do with investor-perception. Private funds are perceived as more transparent and innovative than the public sector funds and have consistently offered higher returns.

Having received a favourable response for their current schemes, private funds are launching more products to suit a variety of needs across a range of investors. This increases their inflows, which in turn encourages them to launch more schemes.

But with the election results to be announced over the next month, it is uncertain how the markets will react to the new government. If there is a correction and the Sensex declines significantly, the investors may turn cautious, which could affect the ability of equity funds to sustain the current growth in inflows.