Desperate measures, poor returns and a moribund mutual fund industry

Written by: Sunil Fernandes

 Desperate measures, poor returns and a moribund MF industry
Finally, the Finance Ministry and the market regulator (SEBI) have taken cognizance of the state of the mutual fund industry. Since 2009-2010 fund mobilisation by the mutual fund industry has been constantly declining. And, this is certainly worrisome, considering that in developed countries mutual funds remain the bulwark for investments, particularly by small investors and high networth individuals.

The last few months have seen frenzied pace of activity, interventions and fresh set of regulations to invigorate an ailing industry.

Reports have surfaced that Finance Ministry officials have been meeting industry officials in a bid to breathe new life into the industry. Plenty of discussions have emerged on entry and exit loads, distribution network revamp and various tax representations.

But, the real problem for the industry is just one - and that is a problem of generating decent returns. If you are unable to give decent returns, you are unlikely to garner funds, as there is likely to be poor appetite for equity funds.

Recently, even the Securities and Exchange Board of India Chief U K Sinha expressed his ire over the poor performance of Mutual Fund schemes. He was right in pointing out that nine asset management companies had generated less than benchmarks returns over a three year period.

SEBI is likely to question the fund managers and CEOs for such poor performance. But individuals realise that equity schemes have fared badly due to the dismal state of the equity markets, which have gone nowhere in the last four to five years.

Most of the blue chip stocks are significantly lower than there were in 2007-2008. The Sensex was around 17400 four years ago and continues to hover around the same level. In fact, money in bank fixed deposits would have given better returns.

Equity schemes have performed poorly because of market conditions, which has acted as a wet blanket for investing in the markets. Of course, there are equity schemes that have given superior returns, but these are far and few between.

Clearly, the mutual fund industry is passing through a tough phase. Unless the equity markets maintain a sustained period of buoyancy and generate decent returns, we are unlikely to see large scale funds flowing into the mutual fund industry. Dispensing small doses for a terminal illness would hardly help.

Read more about: mutual funds
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