The Hindu Business Line : Small countries make big strides in MF field

Scenario 2: Indian funds are nowhere near many of their international counterparts in terms of range and penetration. Funds operating in a number of smaller countries are far innovative on many fronts.

Now, if you have been even casually observing the local funds industry, chances are that you will agree with what is outlined in the first scenario. You will know that fund houses are growing on several counts, their scope is generally increasing and more investors are taking to them than ever before.

What may fox you somewhat is the second scenario - especially the bit about funds based in certain smaller countries doing better than those in India. "Is this really true?" you will be tempted to ask. And before you let that question go answered, here is our take, a quick one, on the situation.

For our purposes, we refer to the data that have flowed from the most recent Asia Oceana Regional

Comparison

Meet of fund industry associations, particularly to information filed on two countries, China and Taiwan, both very important markets for the international fund management community. All data pertain to December 31, 2006.

First, let's view the Chinese market, complete with its 58 investment management companies. The key thing to note here was that the total assets under management accounted for 22 per cent of the total stock market capitalisation, not including non-tradable stocks. As a percentage of bank deposits, this was 4.09 per cent (as a percentage of household savings).

Let's turn now to Taiwan, which had 41 `Securities Investment Trust Entities' in action. The total AUM as a percentage of the overall market cap was 9.24 per cent. As a percentage of bank deposits, this was 8.32 per cent.

As for, India, which had 30 players, the two figures were 9 per cent and 13.44 per cent respectively. Not too bad, as it may still be argued. Right, absolutely. Yet here is a little more about Taiwan that you may wish to read.

Master agents

That little speck of a country (considering that it is but a dot on the map, compared to India's gigantic size) had over 30 `master agents' providing offshore funds service. More than 700 offshore funds were registered with the regulator. Master agents are required to disclose key information - all of it to make investors have diversified choices and ensure safety of transactions. Taiwan had over 100 overseas funds, each of which allowed by the regulator to invest in foreign markets. These included nearly 80 equity funds.

In comparison, the Chinese regulator (as in December 2006) did not allow funds of others countries to sell in China. Only qualified domestic institutional investors (QDIIs) were allowed to invest abroad. Incidentally, retail investors held 233 billion units, representing 49.53 per cent of the total. Institutional investors had 237 billion units or 50.47 per cent.

What are the AUM figures? As for India, the `net assets under management' stood at $73,361 million last December, courtesy the 640 funds (equity, bond, balanced, money market and gilts) that were present. China (307 funds) in comparison had $109 billion. The tally in Taiwan (508 funds) was about $60 billion. The funds available in Taiwan spanned quite a range, including real estate and guaranteed products.

Feedback may be sent to nilanjan@thehindu.co.in

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