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Sharvari Patwa

Mumbai, Dec. 31 If 2008 was daunting for the mutual fund industry, the new year is unlikely to be any better.

The outlook for the industry, which was in news for a multitude of reasons, does not appear to be too positive as the buzz word for investors seems to be “caution”.

The slowdown will play out in six months and the quarter-to-quarter results of corporates will be quite disheartening, said a fund manager. Investors should go for bargain picking, he said. It would be difficult to bring investors back in such a slowdown scenario. This could be a subdued year, he added.

Many feel that it will be debt funds that will be the preferred investment avenue, compared to equity funds, which might take time to make a comeback.

While this year will be more of debt funds rather than equity, the challenge for mutual funds would be to build portfolios in an environment where corporate defaults are on the rise, said Mr Kenneth Andrade, Vice President-Equity, IDFC Asset Management.

There will be a lot of play on the fixed income side in the coming year as several investors will go in for short-term use of money as a way of capital protection, said Mr Jaideep Bhattacharya, Chief Marketing Officer, UTI Mutual Fund.

Confidence levels, as far as equity investments are concerned, are shaken up, but they cannot be totally ignored as an asset class, said Mr Andrade.

Equity class will come back as an asset class over a period of time, said fund managers.

Equity funds will take about a year to return to fashion, said Mr Waqar Naqvi, CEO of Taurus Mutual Fund.

Diversification and disciplined investments should be the key to investing next year, said Mr Andrade of IDFC.

Restoring investor confidence seems to be top of mind for many fund managers.

The challenge will be to fight sentiments as retail investors are essentially driven by sentiments, which seem to be very weak, said Mr Bhattacharya of UTI Mutual Fund.

There is basically shortage of cash with retail investors concerned about investing in equity, he said.

Mr Bhattacharya added that 2009 will have to be a year of innovation as mutual fund industry will have to capture the investors’ interest with innovative but simple products (“unlike the structured products we saw this year”) on the equity side.

Mr Sameer Kamdar, CEO and Managing Partner of the proposed AMC ASK Investment Holdings, said: “While the systemic challenges, like liquidity crisis lead by global credit unwinding, are not of the industry’s doing, the restoration of investor confidence in the aftermath is the prime challenge for the industry.”

The challenge for mutual fund industry in the next year will be to make retail investors understand that there is cost attached to good investment advice, said Mr Krishnamurthy Vijayan, Whole-time Director & Chief Executive Officer of JPMorgan Asset Management.

While there are numerous challenges ahead, the future is not without some positives.

It is hoped that the mutual fund advisory committee to SEBI, headed by Mr S.A. Dave, which is looking at the working of the mutual fund industry, will address key concerns and restore investor confidence. Also, with the Pension Fund Regulatory and Development Authority planning to rope in the unorganised sector in the New Pension Scheme, there would be increased availability of funds in the mutual fund space, said fund managers.

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