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Monday, Aug 25, 2003

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DSP's household income survey: Will AMCs capitalise?

Nilanjan Dey

THOSE who say that total assets managed by India's mutual fund industry are not increasing in the way they should, can take heart from the findings of a survey recently conducted by DSP Merrill Lynch.

The survey inter alia underlines critical issues such as the saving & investment habits of Indians, changing demographic profiles and attitudinal shifts - all of which seem to be in favour of mutual funds, which, at the end of the day, should be seen by investors as vehicles for capital formation.

The MF sector, which is perpetually looking at new ways of garnering more resources, can draw strength from a very important phenomenon: Rising income levels among Indians. In fact, average household income in urban areas has increased at a compounded annual growth rate of almost five per cent to around Rs 1.35 lakh (at current prices) over the last decade.

More households today are moving into higher income brackets, backed as they are bymore than one salary earner. By 2007, the number of households under the upper middle and higher income categories could triple compared to what it was in 1995, it is estimated.

The `young earners' segment is growing rapidly, thanks to the increase in the number of people in their 20s and 30s. This has resulted in a large base of educated youth, willing to spend and invest.

The survey traces back to the economic reforms unleashed in 1991, which helped many MNCs set up base in India and raised salary levels for a section of the populace, especially those working in the services sector. Today, people are spending more money in a variety of ways; they are less debt-averse, inclined to borrow from lending institutions and raring to upgrade their lifestyles. Presumably, some of them would also be interested in looking beyond trite, conventional saving products.

Are fund houses being able to wean away Indians from bank deposits? Ask marketing executives employed by MFs and you will probably hear a thumping `Yes'. The issue, however, is not that simple.

Funds have certainly succeeded in garnering more resources, but their success is still quite limited. Just take a look at any ordinary bank, sitting as it is on a huge pool of low-cost deposits. In plain words, the asset management industry has to do a lot more to tap this area.

For the record, the assets under management (AUM) stood at Rs 1,12,841 crore as on July 31, 2003, a marginal increase over the June 30 tally. The figure is presented by AMFI, the body that represents MFs in India. While an overwhelming portion of the AUM is on account of wholesale investors, it is clear that there is enough potential in the retail segment, which has traditionally saved in government-backed, fixed-return instruments. It's not that there is no merit in such savings; the issue here is whether enough investors are moving away from them to smarter, more sophisticated options. Going by developments that have taken place during the last few years, things are just beginning to warm up for the MF sector. Life at present is quite exciting for fund houses, thanks to competition from rivals, the M&As that keep on happening and lots of regulatory issues. They need to overcome all this and provide investors with what is most needed - good products and services, and above all, superior performance.

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