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Mutual Funds March Forward

Banks’ foray into mutual fund business has led to a quantum growth in assets under management.

Mutual Funds in India have made phenomenal progress in the recent years. Competing successfully with the commercial banks in attracting the savings of depositors, assets under management (AUM) has grown into Rs.22.41 lakh crore by January 2018. Confining as they were to major cities earlier, they were able to mobilise an amount which was equal to less than four per cent of the bank deposits. The assets under management were only Rs.3.39 lakh crore in 2006. Now the volume of funds managed by mutual fund houses is equivalent to 18.30 per cent of bank deposits.

Wider Spread…

For popularising mutual fund products, the Securities and Exchange Board of India (SEBI) had directed fund houses in 2012 to go to ‘B15’ cities. There has been a noticeable penetration into rural areas. This penetration was partly because of the banks’ handling of investments in mutual funds on a commission basis. Besides this, SEBI’s intervention in incentivising the rate of commission for those who are handling the promotion of investments in mutual funds has contributed to the surge in funds flowing into Fund Houses. Banks have emerged as the highest commission-earners, earning Rs.1487 crore in 2016-17. Though the share of top five cities continues to be very substantial, smaller cities now constitute 26.2 per cent of the total funds.

Increase in Investors…

An exciting feature of the expansion of the investor base is the increase in the younger generation’s investors taking an interest in investing in mutual funds. By making some of their schemes more customer-friendly, fund houses have been successful in attracting more investors. Under Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs), they have been able to attract more than 15 million investors, who are investing monthly more than Rs.5000 crore in equity funds. This achievement was due to the combined efforts of SEBI, the aggressive campaigns by distributors, the guidance of AMFI (Association of Mutual Funds of India) and the positive steps taken by the Fund Houses themselves.
SEBI has played a vital role in providing guidelines for the consolidation of a variety of mutual fund schemes. This guideline will make the schemes more straightforward, enabling investors to understand the intricacies of the schemes available. Besides this, SEBI has “plans to allow investors to make mutual fund-transactions worth up to Rs 50,000 a month, through digital wallets.”

Market Leaders…

There are 45 Fund Houses handling mutual fund business at present. Ten banks have promoted asset management companies, Among them, six are from the public sector, and four are in the private sector. Earlier, when banks were yet to venture into AMC, bankers were not willing to sell the mutual fund products on a commission basis. Their fear was that there could be a diversion of bank deposits into mutual funds. Now, as many of the banks themselves have entered into the mutual fund sector, there is less reluctance on the part of the field staff.

Future Prospects…

At present, households contribute over 70 per cent of the bank deposits. Though the number of investors who invest directly in shares, is not significant, investors of this group have to be attracted into mutual funds by explaining to them the relative safety of investments in mutual funds compared to direct investment in the market. Then they can make mutual funds Sahi hai, as the AMFI ads proclaim.

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