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Aarati Krishnan

RETAIL has been the fastest growing segment for the mutual fund industry so far this year.

The retail money managed by mutual funds has expanded by 82 per cent between January and September 2005 for the funds tracked by CAMS - the leading transaction-processor for the fund industry.

Assets from retail investors stood at Rs 17,165 crore by end-September, making up about 15 per cent of total money managed. Money managed on behalf of companies and high net-worth investors expanded at a much slower pace than retail assets.

Fund houses explain the surge in retail assets in two ways. First, equity funds have been popular with retail investors and investments made in equity funds have appreciated sharply in value over the past year due to rising stock prices.

This has ramped up the proportion of retail assets. Experts point out that money from small investors is usually very "sticky" and seldom moves out, irrespective of how the stock market does.

Second, the slew of new equity funds rolled out in the past year was a hit with retail investors and have helped draw out money from the smaller cities and towns.

"Anecdotally, yes, we see retail money flowing into equity funds; new fund offers are a big source, but existing funds are also attracting good investments," observes Mr V. Shankar, Managing Director of CAMS.

Fund houses also report a rise in systematic investment transactions; plans that allow investors to invest in a fund in monthly instalments that are as low as Rs 500.

Many in the industry also think that retail assets will continue to grow ahead of assets from corporate investors. "Corporate investments in mutual funds will slow down or taper off. I think we are entering a tight money scenario where companies will not have much surplus cash to park with mutual funds; instead they will be deploying this cash in expansion projects. Corporate treasuries may continue to park temporary surpluses with mutual funds, but that money will not grow. Retail is the way forward," comments Mr T.P. Raman, Managing Director of Sundaram Mutual Fund.

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