The Hindu Business Line : Mutual funds losing ground despite booming market

THE mighty, in the mutual fund industry, have not yet fallen but are shaken all the same. Year-end data from Association of Mutual Funds in India indicates that in an industry that is de-growing, its leaders are shrinking the fastest.

Despite the dream run on equities and overall economic and investment optimism, the mutual fund industry has lost close to Rs 4,500 crore between April 2004 and March 2005.

This industry-wide slip is despite the fact that several fund IPOs have mopped up astounding corpuses during their initial public offer. Even the initiation of operations of a new fund house has also not helped the industry much.

While much of the blame in the industry is placed on redemptions that faced debt funds because of the hardening of the interest rates, people in the trade also suggest that the trend is indicative of the alarming proportions that the funds cannibalism the industry witnessed last year.

"On the one hand IPOs after IPOs had financial advisors suggesting investors shift from one fund house to another, and on the other this money was being induced at a very high cost of brokerages," said the marketing head of an asset management company.

The big have got smaller this year; last year's giants UTI Mutual Fund, Franklin Templeton and HDFC Mutual Fund have all eroded in assets this year.

Prudential ICICI, however, posted a marginal increase.

The worst affected of these, Franklin Templeton has closed March 2005 with Rs 15,354 crore, a loss of Rs 1,749 crore from its corpus in April 2004.

This is despite the fact that the IPO of the Templeton Flexi-cap Fund mopped nearly Rs 2,000 crore earlier this year.

The fund house is taking comfort in the fact that its investor base has grown this year.

"The acceptance of mutual funds as a preferred investment among retail investors, has been on the rise, the IPO for Franklin India Flexi cap Fund got close to two lakh investors. There has also been a substantial shift in the asset mix - at Franklin Templeton, asset mix has become even better with equity assets now accounting for about 42 per cent of the corpus," said Mr Ravi Mehrotra, President - India, Franklin Templeton.

Fund houses that were around the Rs 5,000-crore size last year have posted growth in the AUMs for the year.

This year Tata Mutual Fund has grown over 30 per cent and HSBC AMC posted 11 per cent growth in their corpuses.

The closure of the IPO of Fidelity's first product in India is expected to set the trend for the current fiscal.

While, some fund houses are embarking on changes in their product and distribution strategies to make the most out of a bad situation, others intend playing the wait and watch game.

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