The year has begun well for the mutual fund industry as the assets under management (AUM) of the industry grew by slightly more than 10 per cent in January, on the back of increased government spending and higher investments into liquid funds by banks and corporations.

The January-AUM for the industry rose to Rs 6.91 lakh crore from Rs 6.26 lakh crore as at end December 2010. At the end of January 2010, the AUM stood at Rs 7.61 lakh crore.

January has also seen net inflows of Rs 84,452 crore; a reversal of sorts for the industry that had experienced heavy net outflows to the tune of Rs 44,349 crore in December.

The highest net inflow was seen in case of liquid/money market funds at Rs. 72,984 crore.

“Quarter-end generally sees a lot of outflows in the system due to the advance tax payment by corporations. But the money has now come back into the system and is flowing into the liquid funds. The government, which was earlier holding cash of up to Rs. 1.25 lakh crore, has also spent about Rs. 1 lakh crore, thereby infusing further liquidity into the system,” said Mr Mahhendra Kumar Jajoo, Executive Director, Chief Investment Officer - Fixed Income, Pramerica Asset Managers.

However, fund mangers and fund analysts are far from rejoicing this increase in AUM as they see this as a temporary reversal in trend. Analysts feel that this is a cyclical phenomenon in the industry and nothing to write home about.

“From the retail equity point of view, this doesn't hold much significance as the equity portion has not seen too much growth for a while now. Though the new applications in December had gone up, January saw a drop due to poor market performance and KYC compliance issues,” said Mr K Venkitesh, National Head – Distribution, Geojit BNP Paribas Financial Services.

“Applications may have dropped by about 25 per cent in January,” he added.

A total of 1005 schemes exist in the industry as at end January.

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