Expert cautions on sectoral funds

UTI chairman P S Subramanyam said the mutual fund industry only reflected the performance of the real economy and the performance of funds can only be improved if there is an improvement in the real sector. "The mutual funds cannot add greater value unless the real sectorimproves, except in the case of certain sectoral funds", said Subramanyam.

Subramanyam said the industry has grown from Rs 9000 crore in 1995-96, to Rs 18,000 crore in 1997-98 and in the first three quarters of the fiscal 1998-99 (nine months) had already mobilised Rs 14,000 crore (in terms of assets). The current size of the industry at $ 17 billion amounted to ten per cent of all deposits in the banking sector he added.

Presenting a table on the post-tax returns generated by stocks, the vice-president of Aditya Vikram Birla financial group, Sanjiv Roy said that if the nominal return on stocks was 21.99 per cent than the post-tax return was 16.02 per cent and the post-inflation return was 6.13 per cent. Compared to this the company deposits which give a nominal rate of return of 14.66 per cent gave a post-tax return of 10.07 per cent and a post-inflation return of 1.22 per cent.

In contrast, bank deposits which give a nominal rate of return of say 9.29 per cent give a post-tax return of 6.42 per centand a post-inflation return of negative 2.16 per cent. While the perceived safest avenue of investment by the Indian public namely gold, gave a nominal return of 7.62 per cent, a post-tax return of 5.55 per cent and a post-inflation return of negative 3.63 per cent. Citing statistics, Roy said clearly stocks were the best bet to beat inflation and earn good returns.