Lifting mutual funds

Indian Mutual funds appears to be entering a phase similar to the one their American counterparts had entered in the early seventies with eq...

Indian Mutual funds appears to be entering a phase similar to the one their American counterparts had entered in the early seventies with equity market slump, low interest rates on bank deposit accounts, effective regulatory framework and entry of sincere long term players.

According to some reports couple of private sector mutual funds have been mobilising from some selected pockets in Bombay alone more than Rs 5 to 10 crores a months. The investors seem to be in need of a temporary parking facility at the rates higher than short term bank deposit rates. Situation, thus, appears to be ripe for take off of money market mutual funds led revival of the mutual fund industry.

Most of the restrictive features of money market funds have since been dropped except the one of lock in period of 30 days. Once that is removed, small investors with limited financial resources can also reap the high short term interest rates of the money market. This may hasten the revival of the mutual fund industry in India. To takeadvantage of this emerging opportunity that foreign players are entering India. The total resources under mutual fund control may thus grow from the present level of about Rs 60,000 crore at the annual accretion of Rs 20,000 to 30,000 crore to over Rs 120,000 crores by year 2000.

To keep the short term gain seekers away from the mutual fund industry in future, equity stake of AMCs will have to be raised from Rs 20 to 25 crores as in case of banks. A lock in period of 5 years will have to be stipulated for the sponsors of the mutual funds. This will also provide requisite financial strength to the AMC to introduce appropriate work technology and engage will qualified fund management team capable of turning out excellent performance and service.

To guide the investors, rating of the schemes will have to be made mandatory before launch and during currency of the schemes. Disclosure of experience of the fund manager and his team and their investment style will have to be made compulsory.

Confidenceboosting measures will have to be supplemented by steps aimed at making investment in mutual fund units a hassle-free and attractive proposition. Mutual fund investment will have to be made as simple as depositing and withdrawing of cash from banks. Some more tax breaks provided with this instrument will definitely go a long way in enhancing its popularity and convert it into an engine of growth that can revive our sluggish equity and debt markets and help catapult our economy into higher growth orbit.

Collection of mutual fund subscriptions is done through branches of the banks which are in the process of providing beneficiary account opening facility to the investing public. In order to make the investments in mutual funds a hassle-free exercise all the listed mutual fund schemes will have to be brought under 8220;Demat8221;. Income distributed by mutual funds will have to be exempted from tax, just like dividend given by companies. Duration of mutual fund schemes under equity linked saving schemes ELS willhave to be shortened to five years or so. In order to provide liquidity, usual loan facility against units of schemes under ELS will have to be made available. Periodical repurchase facility will have to be offered at NAV after one year under ELS schemes.

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The author is managing director of Anagram Wellington Asset Management Co.