Veena Venugopal

Mumbai, July 16

THE stock markets are soaring and bourses are ringing with cash, but it seems the mutual funds companies are being kept away from the party.

Asset management companies, distributors and portfolio management services concede that with the markets entering the 7,000-plus zone, investors, including retail and high net worth, are seeking to invest in scrips of their own preference rather than in a portfolio managed by a fund manager.

Data released by Association of Mutual Funds in India suggests that despite several new fund launches in June, mutual funds have managed to aggregate net inflows of only Rs 47 crore during the month for their equity schemes. The drop has been a staggering Rs 2,989 crore from inflows in May.

"High net worth individuals, and retail investors to a certain extent, are certainly preferring to move to direct investments. The onset of online transacting has helped them tremendously in the process. In fact, from asking for advice on which fund to invest in, they have moved to asking for advice on which stock to invest in," said Mr Krishnamurthy Vijayan, Chief Executive Officer, J M Mutual Fund.

The mutual fund industry's loss is proving to be the gain of brokerages and portfolio management services (PMS). Even among PMS providers, those providing non-discretionary services (where the fund manager follows the investment choices of the investor) have an edge over non-discretionary services, said the Head of PMS of an asset management company. "With stock specific discussions taking place over the air waves, investors feel they have enough information to decide which scrips to buy and what are the ideal entry and exit points," he said.

The pressure to invest directly in the markets usually come about when investors compare the muted returns posted by mutual funds to the `killing' their peers have made by investing directly in the markets, according to Mumbai-based financial planner Mr Gaurav Mashruwala. Usually direct investors only talk about those two or three scrips on which they have made money, preferring to stay quiet on investments that have resulted in losses. There is a false impression created about how easy it is to make money in the markets, he added.

Mr Jayant Singh Bhadauria, who invested in mutual funds for over four years before deciding to strike out in the markets on his own, says that the overall returns he earned from making his own stock decisions are much higher than those from his mutual fund investments. However, he concedes that if mutual funds guarantee annual returns of around 18 per cent, he would rather let them manage his money than get into tracking his stock every day on his own.

Mutual fund returns have been fairly volatile over the last few months. Equity fund returns have varied from 11 to 19 per cent in the last two months. This, compared to the 60-70 per cent run up that some scrips have witnessed makes the case for direct investment much stronger.

Asset management companies, however, caution that indiscriminate direct investments in the equities market by retail investors, usually is a sign that the peak of the market has been reached.

(This article was published in the Business Line print edition dated July 17, 2005)
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