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Wednesday, May 15, 2002

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Overseas investment will boost MFs: Report

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MUMBAI, May 14

THE Government decision to allow mutual funds to invest in the overseas market would spur growth for the domestic mutual fund industry, says a Moody's-ICRA report.

According to the report, a fundamental turning point in the growth of most mutual fund markets is the opening of the market to foreign investments. At the moment, however, there is an industry-wide limit for investments in overseas debt securities of $500 million.

Developments like these, says the report titled `India's mutual funds market primed for growth', will help the growth of the industry.

It says that Moody's Investors Service and ICRA see good prospects for the growth of MF market if fund managers can capitalise on favourable regulatory trends in one of the world's largest stock markets by expanding their investor base and broadening the range of funds.

"After nearly, 40 years, mutual funds have become an important and dynamic sector in India's capital markets. In fact, it has become one of the fastest growing sectors in the capital and financial markets with an average compounded annual growth rate of 20 per cent over the past five years,'' says Mr Enrico Bucalossi, Moody's analyst and co-author of the report.

There is good reason for the "more than moderate optimism about future growth prospects (of the industry) because of the growth of assets under management."

It, however, adds that an important step towards the maturing of the industry will be to develop third party distribution channels and to expand distribution outside of the major cities. The challenges for fund managers will be to break the "big city'' limit and educate the rest of the market, diversifying sales geographically. This will help make the industry more visible and increase transparency in the entire Indian capital market.

"Asset management companies must attract more retail investors. A strong retail backbone will create better standards, greater competition, and more liquidity, in addition to maintaining and improving best practices and better corporate governance,'' says Mr Vippan Singh, ICRA analyst who co-authored the report.

"Stable and long-term fiscal incentives designed to capture long-term retail and private pension savings will be of utmost importance for the industry,'' Mr Bucalossi says. "In a supportive environment, we believe investors would be reassured of a stable industry, local private asset managers will be motivated and encouraged to develop new products, and foreign managers will be attracted to this dynamic market,'' according to Mr Bucalossi.

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