Mutual funds in the time of boom

“The opportunity in India is very high and we have to just convince investors that they must save to beat inflation, and mutual funds are the best vehicle to meet future exigencies,” he says.

The bullishness of Fidelity Investments — which manages assets worth $ 1.2 trillion worldwide — on the mutual fund industry stems from the fact that in the last six weeks, investors have pumped in close to Rs 3,000 crore in the initial public offers of various MF schemes. Of this, just one scheme — Franklin India Flexi Fund — collected over Rs 1,950 crore, making it one of the highest-ever collections in a MF scheme in recent times.

Almost 60 per cent of investments are flowing in from small investors in 80 small cities as mutual funds distributors are advertising aggresively and with new IPOs coming every month, the industry is creating more buzz. And with LIC and private provident funds increasing their exposure, MFs loom resurgent.

Others in Rs the 150,000-crore industry agree. Says P G R Prasad, CEO of SBI Mutual Fund: “A reason for the huge investor interest is the way the equity markets have been behaving in the past few months. People who want to ride the boom but do not want the stock market risk are taking the MF route. There is something for everyone.”

But on the downside, analysts warn, as the mutual funds — flush with funds from IPOs — will start investing in an overheated market will end up losing money if the market crashes. “I admit that a lot of hype is also being created. I will ask the retail investor to be a little cautious because the market will not be the same throughout, market changes its patterns,” says Prasad. “I guess, even the MF managers must be careful. It is one thing to create money and another thing to keep performing at the same levels…”

Adds Sanjay Prakash, CEO of HSBC MF: “The market this time is different from 2000, it is more for long-term players. My only word of caution is that retail investors must understand their own risk appetite, and not follow what others say.” Agrees Suyash: “Investors must have at least 2-year investment plan. The markets may go up and down but even in high volatilities, equity schemes worldwide have performed well. Besides, there are opportunities beyond the BSE Sensex.”

Another concern is that many retail investors like to invest in new schemes at par value by often redeeming existing mutual fund investments and transfer to newer ones despite hefty exit loads. Says Ved Prakash Chaturvedi, MD, Tata Mutual Fund: “There is actually no difference between an IPO of a mutual fund or getting into an existing fund, I think its all in the psychology of the investor.”

Will the growing influence of mutual funds in the Indian stock markets end FII dominance? Not exactly, says Suyash. “The mutual fund industry is not in competition with the FIIs. Both take their own decisions based on opportunties,” she adds.