BOMBAY, 2 December 2002 — The Indian mutual fund market is undergoing a sea change. Ten to eleven years back, when the private sector was allowed to launch mutual funds in India, there was a feeling that the Indians might never let go of Unit Trust of India (UTI) and would shun funds. Agreed at that time, the Indian mutual fund industry was at its nascent stage and people just did not know which fund to choose.
But now, after almost a decade of this confusion, there seems to be some sense of semblance coming back. Going by the recent reports, it is quite clear that the Indian investors have learnt their lessons and have learnt it pretty well.
The biggest change is the perception of UTI. 10 years back, it was unthinkable of putting money anywhere other than UTI and now, the same perception seems to have reversed.
Infact UTI is no longer the UTI which it used to be. So many changes have come about not just in the investing pattern of UTI, the way it manages it funds but also in its entire structure. What started off as an effort to get the institution back on its feet has ended up with UTI being unrecognizably changed. By splitting UTI into UTI-I and UTI-II, the strength of the combined entity will, needless to say, be a thing of the past.
Here is a quick recap: UTI is to be split into two, namely UTI-1 and UTI-2. UTI-1 will comprise mainly of US-64 and the other assured return schemes. The government will honor all redemption guarantees and the liability on this account is estimated at about Rs.60.00 billion for the US-64 scheme and Rs.85.61 million for other assured return schemes. UTI-2 would comprise the other NAV based schemes & this may be privatized eventually. UTI-2 would also include US-64 units sold after January 2002 when the scheme became NAV based.
And it not just UTI alone which has undergone a change. Another big change has been in the choice of the funds. In the earlier days, when the mutual funds industry kicked off, closed schemes were the norm, open ended funds just failed to attract the investors. But now that has also changed. Closed-ended funds are clearly losing flavor with the investors. The total assets under management for equity diversified schemes has marginally increased from Rs.20.12 billion in the 1991 to Rs.22.04 billion at the end of 2001. The number of schemes have shown a steady decline as is evident from the fact that the number of closed-ended schemes has come down from 21 in 1995 to 11 in 2001. Most of the funds have been redeemed, while others have been converted to open-ended schemes.
At the same time, the open-ended equity diversified schemes have shown an increase both in terms of the number of schemes run as well as the total assets under management. The number of schemes has increased from 4 in 1991 to 63 in 2001. The total assets under management has gone up from Rs.2.11 billion in 1991 to Rs.51.84 billion in 2001.
Another major change has been in the way people now look at Morgan Stanley mutual fund. This was the first “phoren” fund to be launched in India and keeping the fascination intact for all things “phoren”, this fund too attracted huge amounts and funds. The money collected was so much that the fund goofed up and did a poor job of investing.
But now this has undergone a change. Though many investors may dismiss this argument, Morgan Stanley Growth Fund is one of the best closed-ended diversified schemes. The scheme is currently trading at a 24.16 percent discount to its net asset values. Over the last 5 years, the scheme has given returns of 7.33 percent — a figure that would dwarf 60 percent of the open-ended schemes. The scheme has got rid of junk stocks that it had accumulated and has been consistently been buying back its units. Yet another change is that investors in today’s market seem to prefer sort term mutual funds. Short-term mutual funds are basically for investors, who wish to invest their money for a time period ranging from one to six months. This new breed of funds have gained popularity very fast and there have been massive inflows into these schemes in a matter of months since they have been launched.
Within ten months of their launch Zurich India High Interest and Templeton Short term growth have each managed to gather more than Rs.15.00 billion. As awareness increases, fund marketers only expect this segment attract more inflows.
There have been other changes too like the launch of sector specific funds — tech, MNC, Old Economy, New Economy and various other types. There are also now gilt funds, Money market funds and also on the anvil is real estate funds.
Undoubtedly, the Indian mutual fund market has matured and now it looks better. Yes, change is inevitable and sometimes, the change is for the betterment.
